EN EN

EUROPEAN COMMISSION

Brussels, 1.6.2018

SWD(2018) 301 final

PART 1/3

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposals for a

- Regulation of the European Parliament and of the Council establishing rules on

support for strategic plans to be drawn up by Member States under the Common

agricultural policy (CAP Strategic Plans) and financed by the European Agricultural

Guarantee Fund (EAGF) and by the European Agricultural Fund for Rural

Development (EAFRD) and repealing Regulation (EU) No 1305/2013 of the European

Parliament and of the Council and Regulation (EU) No 1307/2013 of the European

Parliament and of the Council

- Regulation of the European Parliament and of the Council on the financing,

management and monitoring of the common agricultural policy and repealing

Regulation (EU) No 1306/2013

- Regulation of the European Parliament and of the Council amending Regulations (EU)

No 1308/2013 establishing a common organisation of the markets in agricultural

products, (EU) No 1151/2012 on quality schemes for agricultural products and

foodstuffs, (EU) No 251/2014 on the definition, description, presentation, labelling and

the protection of geographical indications of aromatised wine products, (EU) No

228/2013 laying down specific measures for agriculture in the outermost regions of the

Union and (EU) No 229/2013 laying down specific measures for agriculture in favour of

the smaller Aegean islands

{COM(2018) 392 final} - {COM(2018) 393 final} - {COM(2018) 394 final} -

{SEC(2018) 305 final}

1

Table of contents

1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 4

2. THE OBJECTIVES ............................................................................................................................ 13

3. PROGRAMME STRUCTURE AND PRIORITIES ........................................................................... 18

4. DELIVERY MECHANISMS OF THE INTENDED FUNDING....................................................... 28

5. HOW WILL PERFORMANCE BE MONITORED AND EVALUATED?....................................... 46

2

Glossary1

Term or acronym Meaning or definition

AECM Agri-Environment and Climate Measure

ANC Areas with Natural or other Specific Constraints

AKIS Agricultural Knowledge and Innovation Systems

AWU Annual Working Unit

BPS Basic Payment Scheme

CAP Common Agricultural Policy

CATS Clearance Audit Trail System

CDG Civil Dialogue Groups

CLLD Community-Led Local Development

CMEF Common Monitoring and Evaluation Framework

CMES Common Monitoring and Evaluation System

CMO Common Market Organisation

DG AGRI Directorate General for Agriculture and Rural

Development

EAFRD European Agricultural Fund for Rural Development

EAGF European Agricultural Guarantee Fund

EIP-AGRI European Innovation Partnership for Agricultural

Productivity and Sustainability

ESIF European Structural and Investment Funds

EU European Union

FADN Farm Accountancy Data Network

FAS Farm Advisory System

1 A more detailed Glossary is available in Annex 10. A full-fledged glossary including definitions on the CAP

can be found on the internet page of the Directorate General for Agriculture and Rural Development:

European Commission (2015) Glossary of the Common Agricultural Policy, (DG AGRI).

3

FNVA Farm Net Value Added

GAEC Good Agricultural and Environmental Condition

IA Impact Assessment

IACS Integrated Administration and Control System

JRC Joint Research Centre (European Commission)

LEADER Links between actions for the development of the rural

economy

LPIS Land Parcel Information System

LULUCF Land Use, Land Use Change and Forestry

MFF Multi-annual Financial Framework

MS Member States

POSEI Programmes d'Options Spécifiques à l'Eloignement et

à l'Insularité (for Outermost Regions)

RDP Rural Development Programme

SDG Sustainable Development Goals

SFS Small Farmer Scheme

SMR Statutory Management Requirements

TFUE Treaty on the Functioning of the EU

UAA Utilised Agricultural Area

VCS Voluntary Coupled Support

WFD Water Framework Directive

WTO World Trade Organisation

4

1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT

This impact assessment accompanies the legislative proposals for the Common

Agricultural Policy (CAP) Post 2020 in the context of the next Multi Annual

Financial Framework (MFF). With first steps already undertaken with the

establishment of an Inter Service Steering Group (ISSG) and the publication of an

Inception Impact Assessment in February 2017, the work was reorganised in mid-2017 to

align it to the requirements established within the Commission for the preparation of the

next MFF and to fulfil the requirements of the Financial Regulation in respect of

preparing an ex-ante evaluation.

Other programmes relevant for the CAP are assessed in separate Impact

Assessments for the new MFF:

While the European Agricultural Fund for Rural Development (EAFRD) is part

of the European Structural and Investment Funds (ESIF) other Funds are

pertinent: European Regional Development Fund (ERDF), European Social

Fund (ESF), European Maritime and Fisheries Fund (EMFF) and the

Cohesion Fund, as Article 174 of the TFEU governing cohesion refers to

particular attention to be paid to rural areas.

The 9th

Framework Programme for Research and Innovation (R&I), that

includes a component on agriculture promotion of Food and Nutrition Security

and the Sustainable Management of Natural Resources aiming at supporting the

growing innovation needs of a modernised CAP through stronger synergies

through the development of an ambitious, integrated strategic R&I Agenda.

1.1. Scope and context

As foreseen in its Programme of Work for 2017, the Commission consulted widely on

the simplification and modernisation of the CAP to maximise its contribution to the

Commission's ten priorities and to the Sustainable Development Goals (SDGs). This

focused on specific policy priorities for the future without prejudice to the financial

allocations for the CAP in the next MFF.

The process included a large consultation, as well as analysis of available evidence on the

performance of the CAP, including the relevant REFIT Platform opinions.

The outcome was presented in the Communication adopted on 29 November 2017 and

entitled "the Future of Food and Farming".2 This policy document outlined

challenges, objectives and possible avenues for a "future-proof" CAP that needs to be

simpler, smarter and modern, and lead the transition to a more sustainable agriculture.

In particular, the Commission identified higher environmental and climate action

ambition, the better targeting of support and the stronger reliance on the virtuous

Research-Innovation-Advice nexus as top priorities of the post-2020 CAP.

2 European Commission (2017) The Future Of Food And Farming, Communication from the Commission to

the European Parliament, the Council, the European Economic and Social Committee and the Committee of

the Regions, COM 713 final of 29 November.

5

It also proposed to improve the performance of the CAP based on a new delivery model

that shifts the policy focus from compliance to performance and rebalances with

more subsidiarity the responsibilities between the EU and the Member State (MS). The

new model aims at better achieving EU objectives based on strategic planning, broad

policy interventions and common performance indicators, thus improving policy

coherence across the future CAP and with other EU objectives.

Public debate on the ideas presented in the Communication focused on the new delivery

model of the CAP: while there is a general support to a movement towards a more result-

based policy and more flexibility in its implementation, concerns have been raised

regarding the need to preserve the common dimension of the policy with the appropriate

safeguards at EU level that could guarantee a level-playing field as well as the adequate

ambition in reaching the new objectives.

The Commission Reflection paper on the Future of EU Finances of 28 June 20173 set

out options and scenarios for the future direction of the EU budget, calling for a shift

towards new, sustainable growth and stronger focus on the provision of public goods.

The Communication "A new, modern MFF for a European Union that delivers

efficiently on its priorities post-2020"4 recalled that a modernised CAP must enhance

its European added value by reflecting a higher level of environmental and climate

ambition and address citizen's expectations for their health, the environment and climate.

The document referred to "a prominent suggestion … to reduce and better target direct

payments, in line with the objectives of the policy", with changes to the system of direct

payments considered providing an opportunity to focus on expected results, such as

sustained agricultural production in less profitable or mountainous regions, a focus on

small and medium sized farms, investments in sustainable and resource efficient

production systems and better coordination with rural development measures.

On 2 May 2018, the European Commission adopted its proposals for a new MFF for

2021-20275. Under these proposals, the CAP will have a budget of EUR 365.2 billion

(current prices) for the EU-27 over this period. This represents a 5% cut compared to the

CAP allocation foreseen for 2020 (after deducing budget pre-allocated to the UK).

The MFF Communication stated that direct payments to farmers would remain an

essential part of the policy but would be streamlined and better targeted via capping or

degressive payments. This means that support is redistributed towards medium-sized and

smaller farms, and possibly to rural development. Moreover, direct payment levels per

hectare will continue to converge across MS towards the EU average. The Commission

further specified ways to enhance the environmental and climate ambition.

3 European Commission (2017) Reflection Paper on the future of EU Finances, COM 358 final of 28 June. 4 European Commission (2018) A new, modern Multiannual Financial Framework for a European Union that

delivers efficiently on its priorities post-2020, Communication from the Commission to the European

Parliament, the European Council and the Council, COM 98 final, 14 February. 5 European Commission (2018) A Modern Budget for a Union that Protects, Empowers and Defends, the

Multiannual Financial Framework for 2021-2027 Communication from the Commission to the European

Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions –

COM 321 final, 2 May.

6

This impact assessment report prepared the ground for the decisions of the MFF

proposals and focuses on the changes and policy choices which are specific to the CAP.

1.2. Lessons learned from previous programmes

Established in the early sixties around goals enshrined in the Treaty, the CAP is deeply

rooted in the construction and in the development of the European Union (EU). It has

since undergone several waves of reforms to improve the competitiveness of the

agricultural sector, to foster rural development, to address new challenges and to better

reply to societal demands.

The most recent major reform was adopted in 2013 under co-decision, a first in the

ordinary legislative procedure for CAP. In the context of the 2013 reform, the general

objectives of the CAP were streamlined around three blocks:6

i. Viable food production

ii. Sustainable management of natural resources and climate action

iii. Balanced territorial development

To assess progress towards achieving the above objectives and identify future challenges,

a wide consultation process encouraged a structured debate with all stakeholders,

including non-agricultural actors.

This process included an open public consultation (with more than 322.000 submissions),

structured dialogue with stakeholders, five expert workshops, opinions of the REFIT

Platform, contributions from the European Economic and Social Committee, the

Committee of the Regions, and from National Parliaments. The results were presented in

a public conference in July 2017(see Annex 2 for details).

The process also considered recommendations of the Agricultural Market Task Force

(AMTF)7 and the Cork Conference on Rural Development (2016).

8 Furthermore,

evidence on the performance of the CAP was gathered from a wealth of information

available on the CAP (briefly summarised in Box 1 below), which served as background

for assessing the achievements and shortcomings of the CAP over the years, but

especially with respect to its most recent reform.

Building on these sources for evidence and opinion, major findings about the current

performance of the CAP with respect to its 2013 reform objectives are summarised in the

following section, with emphasis on relevant challenges for the future CAP. In summary,

these findings point towards significant successes in previous reforms of the CAP in the

economic and social cohesion area, while progress in the environmental contribution of

the policy has been more mixed, and especially in the need of major improvements to

meet broader future challenges.

6 European Parliament and Council Regulation (EU) No 1306/2013 (article 110(2)) of 17 December 2013 on

the financing, management and monitoring of the common agricultural policy (…) 7 Report of the Agricultural Markets Task Force (the AMTF report) (2016) Improving market outcomes

enhancing the position of farmers in the supply chain. 8 European Commission (2016) Cork 2.0: European Conference on Rural Development, website.

7

Box 1. Summary list of documentation on lessons learned from the CAP

1. Evidence collected through the Common Monitoring and Evaluation and

Framework (CMEF) which serves for measuring the performance of the CAP.9

2. A series of evaluation studies scheduled over the current Multiannual

Financial Framework (2014-2020) to assess current CAP objectives, with first

findings available in 2017/18 (see Annex 3).10

3. Results concerning progress towards targets and corresponding financial

envelopes available in the Annual Implementation Reports (AIR) for Rural

Development.

4. Additional background documents, data, facts, figures relevant for the impact

assessment have been published on the internet page of DG AGRI: https://ec.europa.eu/agriculture/statistics/facts-and-figures_en

https://ec.europa.eu/agriculture/sites/agriculture/files/consultations/cap-modernising/eco_background_final_en.pdf

https://ec.europa.eu/agriculture/sites/agriculture/files/consultations/cap-modernising/env_background_final_en.pdf

https://ec.europa.eu/agriculture/sites/agriculture/files/consultations/cap-modernising/soc_background_final_en.pdf

Note: Annex 9 includes references that served as a basis for the impact assessment.

1.2.1. Viable food production

Direct payments fulfil multiple roles. Initially introduced to support the adjustment

process of the sector to a more market oriented policy environment, they currently

provide an income safety-net that supports the resilience of 7 million farms, contributing

to more than 40% of the average income of the EU farming community (a proportion that

is much higher in the most deprived regions and in some sectors).11

With income from agricultural activities still significantly below average wages in the

overall economy (around 46% in 2017), the CAP supports the reduction of income gap

between agricultural and other sectors and between Member States and regions. Without

this income support, farming will not be economically viable in many parts of the EU

and farmers. Beyond the negative impact on food security, phasing out the CAP would

lead to land abandonment in some regions and concentration in the most productive

areas.12

9 Established in art. 110 of European Parliament and Council Regulation (EU) No 1306/2013 of 17 December

2013 on the financing, management and monitoring of the common agricultural policy and repealing Council

Regulations and the Commission Implementing Regulation (EU) No 834/2014 of 22 July 2014 laying down

rules for the application of the common monitoring and evaluation framework of the common agricultural

policy. 10 European Commission (2017) Evaluation and studies plan 2017-2021, Directorate General for Agriculture

and Rural Development. 11 European Commission (2016) Annual Activity Report: annexes, DG AGRI, p. 210. 12 M’barek, R. et al. (2017) Scenar 2030 - Pathways for the European agriculture and food sector beyond 2020,

Study to the European Commission.

8

Several evaluations confirm that direct payments enhance income and provide relative

income stability to farmers facing significant price and production volatility - which

helps to keep the EU's vital food production base spread around the Union. At the same

time, evidence suggests that the distribution of these payments, their targeting and their

complementarity with interventions under rural development can all be improved.13

This is further supported by preliminary findings of the on-going evaluation of CAP

measures addressing the general objective of "viable food production" which also

indicate the administrative and management costs of the current CAP as considered to be

generally higher than in the previous period.

In addition to direct payments, market instruments come into play to support farm

income – mainly in times of crisis (to avoid distortion of market signals). Initial

assessment of the exceptional measures deployed since 2015 confirm their effectiveness;

while measures included in the dairy package were popular, their evaluation points to the

risk of problems being moved forward instead of addressed, in particular as regards

market imbalances.14

Rural development policy makes a substantial contribution in various ways. Among

other things, in 2007-2013 it supported investments (e.g. 470 000 farm modernisation

projects, through which EUR 10 billion of EAFRD funding led to total investment of

EUR 49 billion), knowledge-building (e.g. 6.8 million days of training for farmers and

others), and supply chain organisation (400 000 farms became involved in quality

schemes).

Planned support from rural development programmes in 2014-202015

widened provisions

for innovation16

and risk management. However, evaluations point to the need to better

use synergies in programming and designing measures, not only within rural

development but also with other types of funding. According to the draft ex-post

evaluation of the 2007-2013 Rural Development Programmes (RDP), the Objective

“Improving the competitiveness of the agricultural and forestry sector” was achieved to

a moderate extent at EU level. This was mainly due to trainings and investments in

modern machinery and technology, improving the productivity of both human and

physical capital. The average value for the related indicator change in labour productivity

was estimated at 4 %. A greater potential is seen in the offer of so-called multi-functional

measures which had positive effects for several fields of activity at the same time.17

EU risk management tools complement direct payments and safety net systems to

support income. In practice they are made available under RDPs, as the European

Agricultural Fund for Rural Development (EAFRD) enables multi-annual payments.

Causes of low uptake of EU risk management schemes have been widely analysed.18

13 Ecorys et al. (2016) Mapping and first analysis of the CAP implementation, Study to the European

Commission. 14 Interim results for the forthcoming evaluation of the impact of CAP measures towards the general objective

of viable food production. 15 All planned outputs/results stated for 2014-2020 rural development programmes valid as of September 2016

(Cork 2.0 Conference on Rural Development). Some programmes have been modified since then. 16 Especially through the European Innovation Partnership for Agricultural Productivity and Sustainability –

EIP-AGRI – which brings together researchers, farmers and others to turn research into practical innovation. 17 Ecorys (forthcoming) Synthesis of Rural Development Programmes (RDP) ex-post evaluations of period

2007-2013 (forthcoming). 18 See references in Annex 1 for various sources: Commission, Agricultural Market Task Force, OECD, etc.

9

They include too stringent WTO Green-Box requirements (e.g. too high loss thresholds

to receive compensation), budget unpredictability, lack of farm-level data, unfamiliarity

of stakeholders with novel tools, and the likelihood of ex post public support reducing

incentives for an ex-ante risk management approach at farm level.

Amendments introduced in the Omnibus package have addressed some of these issues,

notably by lowering loss thresholds for certain instruments and introducing a new sector-

specific tool for income losses.19

More attention should be paid to the enabling environment, such as functioning financial

markets (futures to allow the development of insurance products), more transparent

information exchange and overcoming the knowledge gap on risk management

instruments at farm level. 20

However, any action in this domain would need to allow for flexibility for both MS and

farmers, since evidence confirms that a single model of risk management cannot be

generalised across the EU.21

1.2.2. Sustainable management of natural resources and climate action

Land-based measures remain pivotal to achieving the environmental and climate-related

goals of the EU, including clean energy production. Direct payments and associated

mechanisms (cross compliance and greening) cover a large portion (90%) of the EU's

farmed area and aim at mainstreaming practices beneficial for the environment.

Cross-compliance contributes to related EU objectives through the statutory

management requirements (SMR) and good agricultural and environmental conditions

(GAEC). However, the level of ambition for GAEC varies across MS, with the Court of

Auditors noting an insufficient scrutiny role for the Commission.22

Since the 2013 reform of the CAP, a share (30%) of the national ceilings for direct

payments is allocated to practices beneficial for climate and the environment, to be

applied by farmers benefitting from direct payments, throughout the EU. The overall

effects of the "greening" layer of direct payments, as currently applied, on farm

management practices and the environment/climate are uncertain but appear to be fairly

limited, although there are variations across MS. Its implementation is qualified as

complex to manage and sometimes less ambitious than intended.23

24

25

26

19 Amendments to the basic acts of the CAP adopted under co-decision in 2017. 20 Ecorys et al. (Forthcoming-2018) Study on risk management in EU agriculture, Study to the European

Commission. 21 Workshop on Risk Management: https://ec.europa.eu/agriculture/events/cap-have-your-say/workshops_en. 22 European Court of Auditors (2016) Making cross compliance more effective and achieving simplification

remains challenging, Special report No 26. 23 European Commission (2016) Review of the Greening after one year, Staff Working Document, 218 final. 24 European Commission (2017) Implementation of the ecological focus area obligation under the green direct

payment scheme, Report from the Commission to the European Parliament and the Council, COM 152 final

of 29 March. 25 European Court of Auditors (2017) Greening – a more complex income support scheme, not yet

environmentally effective, Special Report No 21. 26 Alliance Environment et al. (2017), Report of the evaluator for the Evaluation study of the payment for

agricultural practices beneficial for the environment and climate.

10

The area-based payments co-funded under Rural Development Policy build on this

foundation, providing support to move beyond cross-compliance and requirements

associated to direct payments. In 2007-2013, among other types of intervention, agri-

environment and climate measures (AECM) paid farmers to care for soil, water, air and

biodiversity in ways going beyond their legal obligations, on 48 million ha (around 25%

of utilised agricultural area, UAA).

Support for investment and knowledge-building made a further contribution. Specific

targets related to carbon sequestration, cutting greenhouse gas emissions and raising the

efficiency of irrigation systems (on 15% of irrigated land) were added for the period

2014-2020.

The experience with agri-environment-climate measures shows that their potential could

be better used, in particular to tackle local needs. Their design is not always sufficiently

focused on environmental needs, often because some MS emphasise easier verifiability

to reduce the risk of financial error.27

In particular, co-ordinating the "greening" layer and

agri-environment-climate payment has been challenging.28

Ex-post evaluations of RDPs for 2007-2013 conclude that support under Rural

Development has contributed to a high extent to climate change mitigation and water

management, and to a moderate extent to the protection of natural resources and

landscape. Regarding the supply of renewable energy, most of the reports that have

recognised a positive impact, also declared that the extent of the impact was difficult to

determine and quantify. Climate change has in the meantime become an even more

urgent priority, as well as clean energy transition, with important costs and opportunities

to be faced by the farming community in the future.29

In conclusion, it is clear that the "greening" measures have not fully realised their

intended potential to provide ambitious benefits for climate and environment. Also, the

current environmental and climate architecture of the CAP has proved to be somehow

difficult to manage and complex. Both farming community and other stakeholders

generally share this assessment.30

1.2.3. Balanced territorial development

The CAP currently helps to achieve balanced territorial development both through

support for the farm sector (which has strong links to the rest of the rural economy) and

through direct assistance to non-farm entities and local strategies.

In 2007-2013, the CAP supported 280 000 projects related to non-farm micro-

enterprises, local basic services (childcare, healthcare etc.) and other aspects of rural

life – in addition to a further 170 000 projects under community-led local development

(CLLD) strategies.

27 European Commission (2017), Directorate General for Agriculture and Rural Development, Background

Document on climate and environmental challenges facing agriculture and rural areas. 28 Workshop on Agri-Environment-Climate Measures (AECMs): Challenges of controllability and verifiability,

07/12/2016, Brussels. 29 Pérez Domínguez, I. et al. (2016): An economic assessment of GHG mitigation policy options for EU

agriculture (EcAMPA 2). JRC Science for Policy Report, European Commission, Luxembourg: Publications

Office of the European Union. 30 European Commission (2017) Consultation on modernising and simplifying the common agricultural policy

(CAP), Directorate General for Agriculture and Rural Development.

11

Ex-post evaluations for Rural Development Plans (RDP), strategies and frameworks for

the period 2007-13 are predominantly positive about the contribution of RDPs to

environment and climate action, as well as for growth and jobs. On the latter, the

economic crisis was part of the limiting factors. Outcomes for the quality of life,

diversification and innovation are more nuanced. Prioritisation within limited budget

resources has had a limiting effect on innovative approaches. This support delivers

benefits at the micro-level. There have sometimes been obstacles to effective targeting,

including where this has required effective co-ordination with other EU funds (e.g.

concerning infrastructure).31

In the period 2014-2020, investment in the general rural fabric is continuing: further

improvements to local basic services should cover a total area which is home to 51

million citizens, while 153 million people should be covered by CLLD strategies

(LEADER). There is a sharper focus on ICT: 18 million citizens should be covered by

better ICT services and infrastructure. Ex-ante evaluations point to a need to further

enhance needs prioritisation and internal coherence.32

A recent addition on evidence from CAP's contribution to balanced territorial

developments came from the publication of the World Bank's study of the CAP

(preliminary results of which were presented to one of the IA Workshops).

While stressing the need for better targeting of support in the future, the report argues

that the CAP was associated with the reduction of poverty and the creation of better jobs

for farmers across the EU, although this role differs depending on where a country finds

itself along the process of structural transformation. The report also stresses the positive

impact of decoupled support in increasing productivity and in structural adjustment

(while it does not find a significant or similar impact from coupled support).33

A recent report underlines that EU funding will be essential for the development of the

support services sector in Europe, especially in rural areas where services are scarcer and

less developed.34

While acknowledging that the design of the 2014-2020 programming framework was

more ambitious, the European Court of Auditors (ECA) noted that the implementation

was affected by significant shortcomings, for instance programmes did not started earlier

than in the previous period, despite efforts. To make the programming process more

manageable and efficient, the Court encourages the Commission to review the design of

programming documents with a view to simplifying their content and reducing the

number of requirements for the post-2020 programming period.

ECA further recommended that the Commission defines the various types of indicators

more accurately to have a common set of result-oriented indicators that are more suitable

for assessing results and the impact of interventions.35

31 See, for example, European Court of Auditors (2015) EU support for rural infrastructure: potential to achieve

significantly greater value for money, Special Report N°25. Note that this refers to the 2007-2013

programming period. 32 Kantor (2015) Synthesis of ex ante evaluations of rural development programmes 2014 - 2020, Study to the

European Commission. 33 World Bank on the European Union (2017) Thinking CAP Supporting Agricultural Jobs and Incomes in the

EU EU Regular Economic Report 4.

34 Arroyo De Sande el al. (2018) Provision of social care and support services in remote rural areas: Challenges

and opportunities, European association of service providers for persons with disabilities.

12

Specific measures for agriculture have been implemented in Outermost Regions (OR)

through the POSEI scheme (Programme of options specific to the remote and insular

nature of the outermost regions). In its report presented in December 2016 after an

external evaluation of the scheme, the Commission concluded that POSEI appears

critical to maintaining agricultural production in these regions and to ensure a sufficient

supply in agricultural products.36

Following the Communication adopted by the

Commission in December 2017 on a stronger and renewed strategic partnership with the

EU's outermost regions,37

no change was considered in this impact assessment for the

specific provisions applying for agriculture in these regions.

1.2.4. Cross-cutting issues

Several concerns on cross-cutting issues emerged from the public debate and from

studies and evaluations on the CAP. The REFIT Platform put emphasis on the perception

of an excessive administrative burden of the current greening measures, the control and

audit system and the growing overlaps between direct payments and rural development.38

The stakeholders of the REFIT Platform called for a reduction of the regulatory burden

of the CAP and an improvement of its value for money while ensuring the achievement

of the objectives and increase its integration with other policy areas, especially with other

European Structural Investment Funds (ESIF).

A study mapping the implementation of the 2013 reform of the CAP confirmed that the

policy became more complex with the new flexibilities.39

For the CAP Post 2020, MS

are encouraged to establish a long-term strategy that better takes into account the CAP

objectives including simplification. The public consultation on "modernising and

simplifying the CAP" confirmed a widespread consensus on the idea that the current

CAP tools successfully addresses current challenges to some extent only. A consensus

also emerged on the EU value added of the CAP, but the excess of bureaucracy was

highlighted as a key obstacle preventing the current policy from successfully delivering

on its objectives.

Criticism about fairness and targeting was reiterated while the distribution of direct

payments appears to remain unchanged, on average 20% of farmers still receive 80% of

direct payments (although figures differ among MS). This ratio reflects land

concentration, with half of CAP beneficiaries coming from very small farms while most

of the payments go to medium-sized farms.40

35 European Court of Auditors (2017) Rural Development Programming: less complexity and more focus on

results needed, Special report N°16. 36 European Commission (2016) The implementation of the scheme of specific measures for agriculture in

favour of the outermost regions of the Union (POSEI) Report from the Commission to the European

Parliament and the Council, COM 797 final. 37 European Commission (2017) "A stronger and renewed strategic partnership with the EU's outermost

regions" COM 623 final. 38 REFIT Platform Opinions on "Cross Compliance", "Greening", "Overlaps between pillar I and II", "Control

and Audit", "Rural Development support" and "EU legislation on the Farm subsidies reform". Available at:

European Commission (2016) REFIT Platform Recommendations: Agriculture and Rural Development,

website. 39 Ecorys et al. (2016) Mapping and analysis of the implementation of the CAP, Study to the European

Commission. 40 European Commission (2017) Direct Payments, Directorate General for Agriculture and Rural Development.

13

Another cross-cutting concern is generational renewal: only 5.6% of all European farms

are run by farmers younger than 35 years. Access to land, reflecting both land mobility

and farm succession constraints, together with access to credit, are often cited as the two

main constraints for young farmers and other new entrants.41

ECA recommended that

CAP support should be better targeted to foster effective generational renewal.42

The creation of the European Innovation Partnership for Agricultural Productivity and

Sustainability (EIP) gave an impetus to knowledge creation and sharing, but important

efforts should continue to be made to facilitate the access of farmers to knowledge.43

Finally, contributions in the public debate highlighted concerns on food-related issues,

in particular food security, safety and quality.

2. THE OBJECTIVES

2.1. Challenges for the programmes of the next MFF

The total MFF allocation for the CAP for 2014-2020 in current prices amounts to

EUR 408.3 billion for the EU-28, including an effect of phasing in of direct payments

for Bulgaria, Romania and Croatia.

In its proposal for the next MFF, the Commission proposed an allocation of

EUR 365 billion for the period 2021-2027 for the EU-27. After deducting the UK budget

contribution, this amount represents a 5% cut compared to the CAP budget allocation for

the EU-27 in 2020.

Within this background of the proposed CAP budget, EU agriculture and rural areas face

developments that have significantly changed the broader environment and the

challenges within which EU's agriculture and the CAP will have to operate. This is

evident from the three major changes that have taken place since the 2013 CAP reform

was implemented:

i. higher market-price uncertainty has replaced the high price/high volatility and

high co-movement environment after the financial crisis,

ii. trade negotiations have moved from multilateral to bilateral and regional

agreements, while

iii. new EU international commitments on Climate Change and on Sustainable

Development Goals added new dimensions to the challenges and opportunities

facing the CAP.

41 The survey on the needs of young farmers provided full evidence on these barriers: Ecorys (2015) Pilot

project: Exchange programmes for young farmers, Study to the European Commission; question Number 8

of the on-line public consultation confirmed this (See Annex II); see also (EP) Young Farmers – policy

implementation after the 2013 CAP reform, (EC) Young Farmers in the EU – structural and economic

characteristics. 42 European Court of Auditors (2017) EU support to young farmers should be better targeted to foster effective

generational renewal, Special Report N°10. 43 Coffey et al. (2016) Evaluation study on the implementation of the new European Innovation Partnerships

(EIP) for Agricultural Productivity and Sustainability, Study to the European Commission.

14

These shifts are reflected in the EU Agricultural Outlook, which provides updated

projections for agricultural markets until 2030 under an unchanged policy assumption.44

This outlook points to an agricultural income decline in real terms up to 2030 at sectoral

level, but income per agricultural working unit is expected to increase driven by the

continuous labour outflow from agriculture.

The public consultation confirmed the challenges identified with the lessons learnt

from the latest CAP reform: replies about future CAP highlighted the continuous need

for income support, although questions were raised about whether the current

distribution of CAP support leads to the best possible outcomes, requests were made

for agriculture to be more environment and climate-friendly, and expectations were

advanced about farming's contribution to rural employment. Moreover, answers also

reflected further societal demands about food (organic, quality) and animal welfare,

while the most common answer to the open question on modernisation was

sustainability.

Box 2. Stakeholder views on the CAP

The participants to the public consultation considered that the current CAP

successfully addresses the existing challenges to some extent only (57%). This

view is shared among different types of respondents (farmers, other citizens and

organisations).

All types of respondents (farmers, other citizens and organisations) also share a

negative reply when assessing to what extent the current CAP addresses the

environmental challenges (63%).

The excess of bureaucracy and lack of attention to sustainability was often

highlighted as the main problems/obstacles preventing the current policy from

successfully delivering on its objectives.

At the same time, “greening”, aid applications and controls are identified as the

most burdensome and complex elements.

The call for a reduction of administrative burden is a generalised demand in the

papers submitted by farmers and public administrations.

The wider public also raised a series of concerns on how agriculture interacts

with the environment, climate, animal welfare, food safety and consumer

protection, health standards and broader sustainability challenges.

The public consultation also reiterated the call for simplification when it comes to future

CAP, with specific suggestions including the reduction of overlaps between Rural

Development and other CAP measures, better use of new technologies and e-government

tools to reduce controls.

44 European Commission (2017) EU Agricultural outlook for the agricultural markets and income 2017-2030

(DG AGRI with the support of the Joint Research Centre), presented in a conference with stakeholders in

December 2017.

15

The public consultation and subsequent analysis also revealed concerns around three

significant tensions that characterise modern agriculture in its transformation

towards what is often termed as Farming 4.0 (digital farming). These tensions relate to:

the need to improve simultaneously the economic and environmental and

climate performance, which sometimes creates a short-term trade-off (the

public consultation illustrated different perceptions on economic and

environmental challenges);

the risk for employment from efforts to raise productivity and growth,

especially in the primary farm sector;

the often-complex trade-off between simplification and targeting, and the

appropriate degree of subsidiarity in the context of very different structural

characteristics in the farming sector of 28 MS.

Turning such tensions into synergies would be the litmus test for the capacity of the

future CAP to deliver in a coherent manner to its objectives, as well as those of

related EU policies and priorities. Such priorities include CAP' contribution to many

Union priorities, including to key priorities (Jobs, growth and investment; the Digital

Single Market; Energy Union and climate action; a Stronger Global Actor; and

Migration).

Synergies also link successive reforms of the CAP, that aimed at improving the

sustainability of agriculture and rural areas since the adoption of the EU sustainable

development strategy in 2001, to a number of UN Sustainable Development Goals

(SDGs), in line with the "European Action for sustainability", which outlines that

"sustainable development is an essential guiding principle for all policies".45

Based on the lessons learnt from earlier reforms, a broader and more prospective analysis

was carried out to identify problems and challenges, to anticipate needs up to 2030, in

line with the horizon for the next MFF and SDGs.

Considering all the above, detailed analysis led to the classification of these challenges

according to the three dimensions of sustainable development and linked them to the

assessment of the related achievements and shortcomings of the CAP reviewed ahead

of the Communication on "the Future of Food and Farming".46

(These are summarised in

Table 1).

Cross-cutting broader challenges such as those linked to food security, food safety, food

quality, and sustainability are assumed to overarch the above challenges, and are thus not

included in this table. The same applies for other cross-cutting challenges: simplification

and modernisation.

45 European Commission (2016) Next steps for a sustainable European future: European Action for

sustainability Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions, COM 739 final. 46 Annex 1, and especially European Commission (2017) Background documents on challenges facing EU

agriculture and rural areas: economic, social, environmental and climate, Directorate General for agriculture

and rural development and reports of workshops for the present impact assessment.

16

Table 1. Main challenges facing EU agriculture and their consequences

Dimension Challenge Consequence

Economic Pressures on farm income Low standard of living

Weaknesses in competitiveness Low farm income margins

Imbalance in value chains Fragile farm bargaining power

Environmental

and climate

Climate change Extreme climate events,

droughts, heatwaves, pests,

forest fires

Ammonia emissions from agriculture Impact on human health and the

environment

Unsustainable soil management

practices

Erosion, degraded soils,

salinization, sub-optimal carbon

sequestration

Inputs of nutrients and pesticides,

over-abstraction (irrigation)

Water pollution and scarcity

Loss of nature and landscapes,

habitats and land conversion

Loss of ecosystem and their

services, reduced public goods,

unfavourable conservation status

Socio-economic Low growth, under employment,

poor generational renewal

Depopulation, farm aging,

low job creation

Sub-optimal infrastructure and

services, social resilience

Lower quality of rural life

Inequalities between territories and

groups

Rural/urban divide,

rural poverty

Complexity in terms of eligibility requirements and variety of measures leads to

increased burden for beneficiaries (time for familiarising with information obligations

and extent of information/evidence to be provided with applications) and lack of

economies of scale for administrations. Gold-plating further increases burden as it adds

unnecessary national requirements. A trade-off should be found between simplification

and the need for accountability of the budget spent.

Major drivers for various problems include insufficient levels of innovation and

knowledge, whether in products and processes or the provision of services. With

investments in certain areas of R&D falling and difficulties in translating the results of

research into practical innovation, the level of knowledge was deemed unsatisfactory.

Despite relevant CAP provisions on the Farm Advisory System, weaknesses and gaps

in quality remain. Rural areas show lower participation in education and training than

urban areas (in 2015 19% of the population of rural areas had tertiary education,

compared with 27% of people in all areas).

2.2. Objectives for the programmes of the next MFF

CAP objectives are stemming from three different layers - the Treaty objectives, the

broader policy objectives that link the CAP to other EU policies, and specific objectives

stemming from the more immediate challenges identified above.

17

Treaty objectives

The CAP objectives, set out in Art. 39 TFEU, aim at: (a) increasing agricultural

productivity (including through technical progress and optimum usage of the factors of

production); (b) thus ensuring a fair standard of living for the agricultural community

(including by increasing earnings); (c) stabilising markets; (d) ensuring the availability

of supplies; and (e) ensuring that supplies reach consumers at reasonable prices.

Broader policy objectives: Simpler, smarter, modern and more sustainable CAP

However, achieving the above objectives in the current context necessitates adjustments

to the CAP’s objectives, which are herewith suggested as follows (see table 2).

Based on the Communication, this Impact Assessment as well as the broader EU political

priorities, the corresponding policy objectives of the CAP can be summarised as follows:

Foster a smart and resilient agricultural sector ensuring food security;

Bolster environmental care and climate action and contribute to the

environmental and climate objectives of the EU;

Strengthen the socio-economic fabric of rural areas, including generational

renewal.

These objectives correspond to the three dimensions of sustainability and complemented

by the cross-cutting objectives pertaining to modernisation and simplification can be

summarised in a cross-cutting manner:

Further improve sustainable development for farming, food and rural areas;

this includes addressing societal expectations about food and health;

Promote modernisation by fostering knowledge, innovation and

digitalisation in the agricultural sector and rural areas;

Address simplification by streamlining the design and delivery of the CAP

on relevant EU objectives through a shift from compliance to performance,

in line with the requirements of Budget Focused on Results.

All the above is in line with the cross-cutting objectives for the next Multiannual

Financial Framework: coherence, synergies, simplification and performance. The bulk of

CAP expenditure is currently pre-allocated to MS to provide a degree of stability to MS

and beneficiaries over the medium-term, but flexibility is offered to MS in the

implementation of allocations within a newly defined EU framework.

These policy and cross-cutting objectives are broken down into more specific objectives

which reflect the emphasis required by the identified challenges, Commission priorities

and UN SDGs. Based on challenges highlighted in the previous section, table 2

summarises the general architecture of objectives. For evaluation and monitoring, these

objectives were complemented by operational criteria that serve for the impact

assessment as well as for setting up indicators (see Annex 5.3).

Compared to objectives stemming from the 2013 reform of the CAP, based on identified

challenges, emphasis and/or wording are changing for some objectives and cross-cutting

objectives are made more explicit within a streamlined architecture. Having three policy

objectives - each of which is encompassing three specific objectives - aims at improving

18

the balance across the dimensions of sustainable development. Moreover, the cross-

cutting objective on sustainable development, alongside with the objectives of

simplification and modernisation, are mainstreamed as part of this new architecture.

These objectives apply to the whole CAP - they are the entry point for a single strategic

planning encompassing both pillars (see section 3.3).

Table 2. Architecture of CAP objectives

Policy objectives Specific objectives

Foster and smart and resilient

agricultural sector ensuring food

security

Support viable farm income and resilience

throughout the territory

Enhance competitiveness and market orientation

Improve farmers position in value chains

Bolster environmental care and

climate action and contribute to

the relevant EU objectives

Contribute to climate change mitigation &

adaptation

Foster sustainable and efficient management of

resources

Preserve nature and landscapes

Strengthen the socio-economic

fabric of rural areas

Attract new farmers and facilitate business

development as well as generational renewal

Promote employment, growth and local

development in rural areas

Address territorial imbalances, rural poverty and

social inclusion

Cross-cutting objectives

Further improve sustainable

development for farming, food

and rural areas

Address societal expectations on food and health

Promote modernisation by

fostering knowledge, innovation

and digitalisation in agriculture

and rural areas

Co-create innovation and share knowledge,

including across generations

Address simplification and

policy performance

Streamline CAP design and delivery on relevant

EU objectives

3. PROGRAMME STRUCTURE AND PRIORITIES

In its Communication for the MFF for 2021-202747

, the Commission confirmed that it

would propose a reformed, modernised CAP. This will allow maintaining a fully

integrated single market, ensuring food security, safety and quality, as well as placing

greater emphasis on the environment and climate. The reform should "support the

transition towards a fully sustainable agricultural sector and the development of vibrant

rural areas".

47 COM(2018) 321 final, full quotation under 4.

19

3.1. Why act through an EU-level policy?

3.1.1. Legal basis

The main legal basis for EU action stems from the Treaty (Arts. 38 to 44 TFEU), which

enshrines an obligation to establish and implement a CAP. See previous section for the

objectives set out in Art. 39. Other Articles of the Treaty are also relevant. Arts. 174 and

175 on economic, social and territorial cohesion include a reference to rural areas, as do

Art. 191 to 193 on the environment.

This fundamental legal basis is interpreted in various legislation emphasising the strong

links of agriculture to the wider economy (especially the rural economy) and to the

natural environment. Art 11 states that environmental protection requirements must be

integrated into the definition and implementation of Union policies and activities, in

particular to promoting sustainable development. Additionally, the Charter of

Fundamental Rights of the European Union provides for protection of intellectual

property that includes geographical indications (Article 17).

3.1.2. EU Added value

Most of the challenges identified above have cross-border and global nature which

require a common action at EU level:

Firstly, the single market for goods and services offers substantial economic

opportunities to farmers as well as important pressures which require a common

safety net, including a system of income support that avoids potential distortions of

competition, and underpins food security as well as food safety.

Secondly, the effects of increased exposure to world markets, resulting from

previous CAP reforms and trade agreements can only be addressed at EU level.

Thirdly, key sustainability challenges like climate change, water use, air quality and

biodiversity are cross-border, and also require EU action to meet EU-wide

objectives.

In other areas, a strong EU-wide dimension needs to be combined with more subsidiarity.

These areas include food quality, public health and nutrition, rural area challenges (with

big gaps in rural unemployment existing between MS), poor rural infrastructure and

services, and weaknesses in research and innovation. An appropriate EU-level response

to these challenges allows more effective and efficient action when combined with more

flexibility at MS level. A common budget enables all MS and regions to respond to the

challenges and objectives set out, including those with limited financial resources. In this

respect it supports solidarity and limits gaps between regions. Furthermore, the CAP

promotes networking, spreading of good practices and supports the delivery of public

goods across the EU. Both the World Bank study on the CAP and the JRC study on

Scenario 2030 provided additional evidence on the value added of the CAP.48

48 M’barek, R. et al. (2017) Scenar 2030 - Pathways for the European agriculture and food sector beyond 2020,

Study to the European Commission.

20

One of the tested scenarios in the JRC study shows notably that removing the CAP

would result in an 18% drop in farm income on average in the EU, threatening the

economic viability and attractiveness of rural areas, a sizeable decline in production

affecting food security, land abandonment, a decline in permanent grassland and a

stronger production intensification, which can lead to more pressure on the environment.

3.1.3. Subsidiarity and proportionality

The Communication on the Future of Food and Farming suggests a new delivery model

for the CAP which, by rebalancing responsibilities between the EU, MS and

beneficiaries, is expected to enhance subsidiarity and flexibility for MS as described in

sections 3.3 and 3.4 below.

The future policy approach set out in section 3.3 is proportional. The economic,

environmental and social challenges facing the EU's farm sector and rural areas require a

substantial response which does justice to the EU dimension of those challenges. The

greater power of choice to be offered to MS in selecting and adapting available policy

tools within the CAP to meet objectives, in a more results-based model, should make it

even less likely that the CAP oversteps a proportionate level of action.

3.2. Critical mass of funding/projects required

The CAP is currently implemented under shared management, with MS setting up their

specific governance structures in order to ensure sound management of EU funds. With

regard to a critical mass of "projects" to meet its economic, environmental and social

objectives the CAP needs to offer funding to large numbers of farmers and other

beneficiaries in rural areas, and improve its targeting, so that farm income, food security,

food safety, environmental and climate ambition and the diversity of rural areas are

adequately addressed. However, this will take place efficiently only if the total available

budget is adequate.

The notion of a critical mass of projects is unlikely to be an issue for the CAP as a whole.

Nevertheless, this could be critical for some MS/their authorities in some cases or for

some measures. In a policy such as the CAP – which addresses large numbers of

potential beneficiaries and a large physical area – there is a possible danger that support

is spread too thinly to have a significant effect. The risk is perhaps greatest in the case of

area-based payments (not only direct payments but also various environmental payments)

but is also present in other types of support, e.g. for investment.

3.3. Envisaged changes in the scope and structure of programmes

Against the background of a difficult budgetary context, the May Communication for the

2021-2027 MFF proposes a moderate cut for the CAP budget (- 5%).49

Nevertheless, a

significant part of the EU budget should continue to be dedicated to this common policy

of strategic importance.

49 COM (2018) 321 final as referenced under 4) as well as related documents, in particular Factsheet on the

Common Agricultural Policy

21

The Communication further confirmed that the reformed policy would continue to be

built around two pillars. In current prices, the following allocations are proposed:

EUR 286.2 billion allocated to the European Agricultural Guarantee Fund

(EAGF) – pillar I.

EUR 78.8 billion for the European Agricultural Fund for Rural Development

(EAFRD) – pillar II.

These agricultural funds are complemented by additional funding of EUR 5 billion from

Horizon Europe, out of an allocation of EUR 10 billion proposed to support research

and innovation in food, agriculture, rural development and the bio-economy.

A more balanced distribution of direct payments (pillar I) will be promoted through

either compulsory capping at farm level or degressive payments. Direct payments will

also continue to converge towards EU average.

For rural development, a 10% increase in national co-financing rates is proposed to

rebalance the financing between the EU and Member States’ budgets, in line with what is

foreseen for the other European Structural and Investment Funds. The distribution of

EAFRD support will be based on objective criteria linked to the policy objectives and

taking into account the current distribution across MS.

A certain level of flexibility for transfers between pillars will be offered to MS. Up to

10% can be transferred between direct payments and EAFRD, in both directions. A

higher percentage can be transferred from direct payments to EAFRD allocation for

interventions addressing environmental and climate objectives and installation grants for

young farmers.

Although no significant changes are envisaged in the structure of the programmes of the

CAP, major changes in the delivery mechanism and the scope of various interventions

are proposed to respond to the urgency, the range and seriousness of the identified

challenges.

On the one hand, the CAP will continue to operate through two funds. In general terms,

the EAGF – (CAP pillar I) will finance the bulk of income support payments for farmers

as well as market instruments, while the EAFRD – (CAP pillar II) will be the source of

funding for most other types of intervention, as at present. The two-fund structure is kept,

reflecting differences between the respective types of support concerned: annual and

fully Union-financed (pillar I) vs. mainly multi-annual and mainly co-financed by EU

and MS (pillar II).

On the other hand, the complementarity and the synergies between the two pillars will

be enhanced thanks to a single strategic planning process.

As proposed in the Communication on the Future of Food and Farming and confirmed in

the MFF Communications (February and May), a new delivery model will bring a

fundamental shift in the CAP, moving away from compliance with detailed EU-level

rules towards placing more emphasis on achieving results against the policy's common

objectives, defined and agreed at EU level.

22

This draws on the lessons learnt from the implementation of policy and from the public

consultation. Having detailed EU rules raises issues about the complexity of the policy,

the limitations of a "one size fits all" approach, the effectiveness and the efficiency of the

policy, including the excessive administrative burden. Moreover, there is need to

strengthen the coordination and synergies between CAP pillars and interventions, and to

maximise the CAP contribution to EU priorities. While striving to accommodate the

diversity of situations and challenges, the policy became more and more complex and its

main purposes lost visibility.

Against this background, it is proposed to further simplify the CAP and to improve its

performance (Chart 1). With the proposed new delivery model, CAP design and

implementation is streamlined around the EU objectives spelled out in section 2. These

objectives, to be agreed at EU level, should be clearly outlined in a new basic act of the

CAP that should bring together the two pillars under a common planning strategy

(proposal for a regulation for CAP Strategic Plans).

Chart 1. The new delivery model for the CAP - key elements

Annex 4 provides detailed explanations and illustrations on the new delivery model, as

well as an analysis of opportunities and challenges and related safeguards. In essence,

each MS will draw up a "CAP strategic plan" – covering interventions planned under

both CAP pillars to meet quantified targets (based on result indicators set out in EU

legislation) linked to EU-level CAP objectives. The targets and planned interventions

(with financial allocations) will be justified by an analysis of strengths, weaknesses,

opportunities and threats (SWOT) which the MS in question will carry out with regard to

its farm sector and rural areas, taking into account their planning tools emanating from

EU environmental, climate and energy legislation.

23

MS will also need to identify how their plan performs in terms of simplification and

reduced administrative burden and justify when national rules add additional

administrative burden for beneficiaries.

The Commission will assess whether the draft plan sets appropriate targets and a credible

approach to meeting them, and request modifications as necessary before approving it.

The approval process is designed as a strong safeguard to ensure strategic planning and

enhanced efficiency. While effectiveness of national CAP plans will be assessed on the

basis of the needs analysis, simplification can be assessed based on the MS description of

administrative burden reduction, but it can also be estimated on the basis of the

complexity of the planned strategy. Identifying potential issues early on at planning stage

will allow adapting the national plans and increasing their coherence with the EU CAP

objectives, including simplification.

The progress of the plans will be assessed each year against the targets set in terms of

result indicators (all of which will be, by their nature, closely linked to the CAP). When

targets are missed by a significant margin, the Commission would request Member State

to submit a formal action plan to remedy the situation. Where the intended remedial

actions have not been implemented or the Member State is not willing to engage, the

Commission may suspend payments. Should the problem not be solved, the suspended

amounts would be definitively lost by the Member State. Such EU corrective actions

would not apply at the level of beneficiaries.

The above-mentioned process will be the main means of "steering" what the CAP does,

albeit in a manner less prescriptive and detailed than at present. Legislative acts will

become more focused on creating a framework for MS to achieve EU-wide objectives in

a more flexible way, while ensuring an EU level playing field and keeping accountability

for results, in line with the principle of Budget Focused on Results.

This can be illustrated for environment and climate (Annex 4 also offers other

examples). As previously mentioned, the current "green direct payments" have been

heavily criticised. Among other things, what was originally supposed to be a short list of

simple, generally applicable requirements expanded to encompass a mass of numerical

thresholds and exemptions, and there have been loud calls for change.

But this does not mean that the new CAP will be shorn of environment - and climate-

related rules connected to support payments.

A proposed new system of "conditionality" will draw on the most relevant aspects of

cross-compliance and green direct payments. An extension of the scope is envisaged.

This would lead to adding new requirements, for instance a ban on converting or

ploughing wetlands or peatlands to protect carbon-rich soils, the use by farmers of a

Farm Sustainability Tool for Nutrients that would reduce ammonia and N2O emissions,

with reduced nutrient leaching and run-off expected to improve water quality.50

50 The situation with respect to the Water Framework Directive will be further assessed based upon the

forthcoming Commission report on the implementation status of this Directive.

24

Other requirements could be more demanding than at present (e.g. crop rotation instead

of crop diversification, which would bring multiple benefits such as helping replenish

nitrogen in soil, reducing erosion, increasing the water infiltration capacity of the soil and

preventing weeds - thus reducing pesticide use; ban on converting or ploughing any

permanent grassland in Natura 2000 areas to preserve biodiversity and maintain carbon

stocks).

The scope and definition of the elements included will ensure a solid foundation for a

positive influence of the CAP on the environment and climate – especially as MS'

planned implementation of conditionality will be assessed and approved in CAP strategic

plans. But the level of prescriptiveness in EU legislation will be below that of green

direct payments (i.e. with basic descriptions of the practices concerned, leaving MS to

propose the details of implementation), giving MS sufficient flexibility to take into

account the wide diversity of farming conditions across the EU.

This flexibility is essential for MS to meet their targets. In this respect, MS would also be

able to deploy voluntary interventions promoting the provision of environmental and

climate public goods, going beyond business as usual. In particular a new intervention is

proposed under pillar I, the eco-scheme, aimed at enhancing the environmental and

climate performance of the CAP, going beyond the basic conditionality. Additional

commitments can be further supported under rural development (pillar II).

Chart 2 illustrates the changes proposed in the "green architecture" of the CAP.

Enhancing current cross-compliance to a strengthened conditionality will work as a

safeguard for related requirements stemming from EU legislation embedding statutory

management requirements pertaining to public, animal and plant health (including

relevant provisions of food law), as well as animal welfare, in addition to climate and

environmental requirements.

Chart 2. Current and proposed new green architecture of the CAP

25

Conditionality also ensures that direct payments continue to serve several objectives

(economic, climate and environmental, social). Their integration into strategic planning

will further strengthen the linkage between needs, types of intervention and results. This

new EU framework will still include some basic requirements, needed to ensure a level

playing field, but it will enable MS to better target the implementation of direct payments

according to needs.

The types of intervention which may be funded through CAP strategic plans will remain

broadly like those available today – with possible amendments - and will be laid down in

CAP legislation but bundled into broader categories (with fewer rules attached, as

already indicated). In the following Box 3, a non-exhaustive list of such interventions is

presented.

Box 3. Broad CAP interventions considered under the new delivery model

Interventions generally funded under pillar I

decoupled direct payments;

voluntary coupled support;

new approaches for the environment and climate – voluntary for MS and farmers

(e.g. eco-schemes, top-ups);

some sectorial programmes;

Interventions generally funded under pillar II

payments related to constraints (i.e. payments in areas facing natural constraints

– ANCs – as well as payments related to the Natura Directives51

and the Water

Framework Directive52

);

(area- and animal-based) payments for voluntary management commitments;

support for investments of various kinds;

support for business development (including for farmers setting up for the first

time);

risk management tools;

support for co-operation (including innovation and the Leader approach);

support for building human capital (training, other knowledge transfer etc.).

The approach of steering policy design and implementation through plans rather than

through compliance with detailed EU rules will mark a bigger change for pillar I rather

than pillar II, as the new "planning" process for both pillars will have elements in

common with the process for drawing up and implementing rural development

programmes in the current period.

51 European Council (1992) Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of

wild fauna and flora and European Parliament and Council Directive 2009/147/EC of 30 November 2009 on

the conservation of wild birds. 52 European Parliament and Council Directive 2000/60/EC of 23 October 2000 establishing a framework for

Community action in the field of water policy.

26

To summarise these main changes:

Objectives: are streamlined into a limited number of general and specific

objectives, applying to both pillars of the CAP.

Interventions: the essence will remain the same but there will be a

reorganisation. Current "measures" will be bundled into broader "types of

intervention". More significantly, the number and detail of related EU rules will

be cut back to what is strictly needed at EU level to ensure level playing field.

CAP Plan: Member States will submit a single strategic document for both

CAP pillars for their entire territory. However, where elements of the CAP

Strategic Plan are established at regional level, the Member State will ensure the

coherence and the consistency with the elements of the CAP Strategic Plan

established at national level.

Length of plans/programmes: the intention is that CAP strategic plans will

contain less detail than current rural development programmes – though enough

to judge whether MS are presenting a credible approach to meeting the objectives.

Factual basis for designing plans/programmes: the obligation to base future

CAP strategic plans on sound evidence will not mark a theoretical change from

what should happen with current rural development programmes. However, a

new policy period offers a chance to correct some cases of poor application of

this principle. For pillar I, this implies moving from notifications to planning

(MS must integrate interventions into their strategic analysis and plan,

Commission must approve).

Reporting: instead of annual notifications and implementation reports, annual

performance reports will focus on outputs and results, with common indicators.

Technical assistance and networks will be extended to cover both pillars.

In view of the large number of beneficiaries from CAP support, shared management

remains the main implementation mode for the major part of the policy. Shared

management provides for the possibility to establish tailor made instruments which take

into account the envisaged geographical distribution.

The existing CAP governance bodies set up in the Member States, notably the paying

agencies and certification bodies, have shown their effectiveness in protecting the EU

budget and ensuring sound financial management and reasonable assurance. The new

CAP delivery model acknowledges this situation by conferring more flexibility to

Member States in deciding and managing the control systems in place. Changes in the

assurance framework are explained in Annex 4.

The new delivery model for the CAP will involve a shift from compliance towards

results and performance and a new distribution of responsibilities between the EU and

Member States, involving substantial changes at three different levels:

1) A multi-annual programming approach that will cover the two pillars of the CAP

(direct payments, sectorial strategies under the current CMO and rural

development), based on a common set of objectives, indicators and a common

catalogue of broad types of interventions.

27

2) A new system of monitoring and steering policy implementation

3) An adapted approach to get assurance and perform audit

This policy shift comes with challenges and risks that are analysed in great detail in

Annexes 4 and 5. The related safeguards to minimise these are further analysed in section

4 below. Section 5 outlines changes considered in the Common Monitoring and

Evaluation Framework to improve performance reporting. These various checks and

balances of the policy cycle are summarised in Chart 3.

Chart 3. The checks and balances of the policy cycle

The funding mechanisms should remain mainly grants, mixed with financial instruments

in the EAFRD as currently. Financial instruments may be used independently or in

combination with grants. On CAP plan level they may contribute with additional

financing in particular for revenue generating projects. The use of financial instruments

under Rural Development is to be further encouraged in the next MFF as access to capital

for the sector differs very much between MS. A limiting factor for further use of

financial instruments is the lack of experience of the MS authorities. Specific actions

under technical assistance will also be necessary in future to facilitate the

implementation. Furthermore, the preparation and programming of financial instruments

needs to be simplified.

3.4. Types of action to be prioritised

For the sake of preserving the balance across the dimensions of sustainable development,

all the objectives identified in section 2 do matter. However, within their CAP strategic

plans MS will respond to the EU objectives in ways which reflect the analysis of their

situation and needs. A wealth of evidence drawing on the experience of implementing the

CAP over many years points to a need for various types of support through the CAP –

along the lines of those described in section 3.3.

28

The best way to meet the CAP's objectives is to strike the right balance between common

rules established at EU level and flexibility granted to MS in selecting broad intervention

types and designing measures within this framework. In such a way MS can better

prioritise the appropriate interventions to address the objectives considering the

economic, environmental and social conditions prevailing on their respective territories.

In the proposed future CAP, MS will address potential difficulties in the choices which

they make (within CAP strategic plans) about how to allocate funding on their territory to

achieve objectives. The easiness or difficulty of this exercise depends partly on available

funding.

Significant involvement and oversight from the Commission will ensure a level-playing

field with common requirements, for instance on conditionality, indicators and minimum

target setting and accountability (see section 5). In the areas of the environment and

climate it emerged that, although voluntary tools have a very large role to play, they need

to be complemented by a certain level of "mandatory" standards, especially (but not

only) regarding domains in which there is no EU legislation but nevertheless

commitments for action, such as that of soil.53

Options testing various degrees of emphasis on EU objectives/broad interventions are

assessed in the next section.

4. DELIVERY MECHANISMS OF THE INTENDED FUNDING

Options were designed to test how EU objectives can be best met (Table 2 in section 2),

while reflecting broad ideas of the ongoing public debate, i.e. better targeting of

payments, increased environmental and climate ambition and fostering of

modernisation and simplification. In addition, the greater subsidiarity given to MS

under the new delivery model to plan CAP interventions against EU objectives and to

shift from compliance to performance is assessed. This section summarises the options

tested in this impact assessment and presents key impacts that would result from a shift

in priorities to address EU objectives (more details are available in Annex 5).

4.1. Which options are assessed?

The baseline for the period post 2020 takes into account the fully phased-in envelopes by

MS and the distribution between direct payments and rural development as currently in

place (i.e. after applying the flexibility between pillars). A "post-Brexit baseline" for the

EU-27 deducting UK pre-allocated envelopes and related contributions was developed.

The overall budgetary envelopes for options were determined by assuming that the

withdrawal of the UK would translate into an 8.9% reduction in CAP budget. In this

assessment, the budget for market measures is kept unchanged as their share in total CAP

support is now very small (reaching 5% of the total CAP budget).

53 EU soil thematic strategy aiming at protecting soils and preventing soil degradation, SDGs, FAO voluntary

guidelines for soil sustainable management.

29

With these instruments offering limited possibilities for cuts since they perform an

essential role in times of price declines, in particular as safety net, a higher cut for direct

payments (-10%) was simulated instead. Since options tested in this impact assessment

could not prejudge the next Multiannual Financial Framework (MFF), they did not

include assumptions on EU resources and kept the distribution of envelopes between MS

unchanged. Specifications about proposals tabled by the Commission for the future MFF

can be found in the summary section (4.2.7).

Since MS potential choices in their future CAP Strategic Plans are not known, options

should be interpreted as illustrative of different ways to achieve these objectives, more

particularly in terms of environment-climate performance as well as for targeting and re-

distributing support. Because of this design, options are not mutually exclusive, and

results should not be interpreted as indicative of a preferred option. Sub-options

were defined to reflect the degree of subsidiarity left for MS under the new delivery

model and possible differences in the level of ambition in the environmental and climate

priorities of MS, as these are the areas where most uncertainty exists about these possible

differences. Both voluntary and mandatory (conditionality) approaches were tested to

achieve higher environmental sustainability (insights on behavioural differences for those

approaches summarised in Annex 8).

To ensure an increase in environmental and climate ambition, a new basic conditionality

is proposed; it includes some additional minimum requirements going beyond the current

cross-compliance rules (as explained in section 3.3). While the Commission reaffirmed

the need to enhance the environmental and climate ambition, this new conditionality

applies to all options with different ways of articulating with voluntary measures. (see

4.2.2).

4.1.1. Policy options54

All assessed options assume the 2013 CAP reform fully implemented and 2030

market environment as described in the EU agricultural Outlook,55

with a value of

production increasing on average by 2 % per year in nominal terms, i.e. almost stagnating

in real terms and subject to risks of output variability. The initial baseline was updated

to incorporate the post-Brexit budgetary envelopes.

Option 3 (incentives for environment, climate action and health) tests the potential of

a voluntary eco-scheme to increase environmental sustainability. It also examines the

potential role of risk management tools with lower direct payments in supporting farmers'

income. Two sub-options reflect different MS environmental ambitions and approaches

to direct payments:

Option 3a: Stronger priority on environment than on economic sustainability

Option 3b: Lower environmental ambition than in 3a, but greater focus on

direct payments redistribution.

54 Initially, an Option 2 was developed to assess the value-added of the CAP (for more details see footnote 46),

but this option was not retained in this impact assessment as phasing out CAP would not be in line with the

Treaty obligations. However, to avoid confusion, the original numbering of options was kept as in the

inception impact assessment. 55 EU Agricultural outlook for the agricultural markets and income 2017-2030.

30

In option 4 (jointly address environmental and economic sustainability), direct

payments are better targeted and the implementation of conditionality is more ambitious

in order to improve the joint economic and environmental performance of the CAP, as

well as address climate challenges. Sub-options are also developed to illustrate possible

differences in MS ambition regarding environmental targets.

Option 4a: Environmental and climate ambition addressed via higher

requirements exceeding basic conditionality

Option 4b: No requirements beyond basic conditionality (already more

ambitious than currently).

Option 5 (focus on small farms and the environment) places strong emphasis on

environmental care and employment – and shifts the focus on small and medium size

farmers to keep jobs in rural areas. MS are obliged to allocate 30% of pillar I payments to

provide top ups for four schemes that would be voluntary for farmers, organic farming,

permanent grassland, Areas with Natural Constraints (ANC) and linear landscape

elements. This ring-fencing obligation would further encourage climate action and

sustainable management of natural resources.

4.2. Assessment of the analysed options

Chart 4 summarises the elements included in the analysed options and sub- options.

Chart 4. Summary of main assumptions for IA options56

56 See Tables 1.1 and 1.2 in Annex 5.

31

Note: The above allocation of funds to different policy interventions in the various options is purely based

on assumptions for purposes of analysis and is in no-way indicative of preference of a specific option.

Some differences were on purpose made wide so that differential impacts could be better assessed.

Options 4a and 4b are similar in terms of direct payments.

Interventions: BP= Basic Payment, RP= Redistributive Payment, YF= Young Farmers, RM= Risk

Management, AECH = Agri-Environmental-Climate and Health, VCS= Voluntary Coupled Support,

Comp= Competitiveness, EIP= European Innovation Partnership, ANC= Areas with natural constraints.

The different budget allocations and interventions were translated into more detailed

schemes and payment levels for modelling purposes. Some environmental requirements

were selected in view of their modelling feasibility for the purpose of testing the options.

In particular, a number of requirements considered under the new conditionality could be

assessed (crop rotation, winter soil cover, nutrient management, minimum share of area

devoted to non-productive features, restrictions on permanent grassland…).

These were applied at farm level, regional or national level depending on the model used

and results could be aggregated at EU level. More explanations on what was precisely

modelled in this impact assessment can be found in Annex 5.1. In addition, to cover the

items which are not sufficiently captured by the models, and to summarize the impact of

the options vis-à-vis the baseline, Multi-criteria Analysis, including an extensive

literature review, was used (See Annex 5.2).

4.2.1. Impact on farm income

The role of direct payments in stabilising farm income is generally recognised, but

both the Communication on the Future of Food and Farming and the MFF related

documents called for a more balanced distribution of support. This possibility was further

explored across the various options in three ways: a compulsory capping of direct

payments, degressive payments as a way of reducing the support for larger farms, and

with enhanced focus on a redistributive payment in order to be able to provide support in

a targeted manner e.g. to small-medium sized farms.

A different focus on environmental and climate payments also affects the distribution of

support, and thus income. In option 3 basic payments are significantly reduced and

support is targeted towards a new voluntary eco-scheme; option 3a is more

environmentally ambitious, but entails no further redistribution of support (as direct

payments are reduced), while option 3b is less environmentally ambitious, but combined

with more redistribution, capping and coupled support. Option 4 tests jointness by

coupling direct income support with extra environmental requirements, while also

redistributing towards permanent grassland; the latter is associated with lower incomes.

Option 5 targets small and medium size farms.

A note of caution is necessary about the interpretation of results. In this analysis, farm

income decline is overestimated, as the model used does not account for structural

change, iterative price feedbacks and longer term benefits due to changes in

production systems. Nonetheless, the analysis gives an accurate indication of the

relative performance of the various options in the short-term, as well as of the expected

impact on different farm types and sectors.

32

Cumulating budget cuts, redistribution and higher requirements weighs on the scoring

of options

The quantitative assessment of income impacts (see Table 3) shows that the baseline pre-

Brexit outperforms all options (given the higher budget). The baseline post-Brexit (which

implies a linear cut) already has a significant impact on income in some sectors (Graph

1). In addition to the budget reduction, alternative allocations (e.g. towards risk

management), redistribution of support (e.g. towards small farms and regionalisation)

and the additional environmental requirements in the options bear on the final

impact of options on average EU income level.

Table 3. Impact of policy options on EU average farm income

Relative to

baseline

pre-Brexit

Relative to baseline post-Brexit

Post Brexit 3a 3b 4a 4b 5

Direct payments -10% -75% -40% -6% -6% -26%

Total support -10% -11% -7% -4% -4% -6%

Income -2% -10% -5% -8% -5% -5%

Note: Direct payments include BP, RP, YF, VCS; Total support includes Direct payments, eco-schemes and ANC.

Source: JRC, IFM-CAP

Compared to the post-Brexit baseline, farm income declines on average by 5% in option

3b, 4b and 5; the decline in options 3a and 4a is higher, 10% and 8% respectively. The

latter difference is explained by the very low basic payment in option 3a as budget is

devoted to other measures. When adding other criteria, such as targeting smaller farms

and farms with lower incomes, option 5 outperforms the other options in terms of income

distribution. However, this result is also conditional to the fact that the total level of

support (EU and national) is maintained in areas with natural constraints (ANC). 57

Sectorial impacts differ and are substantial (Graph 1 and 2). The cut in direct payments

(baseline post-Brexit and option 3) has a strong effect on cattle, crop, sheep and olive

producers because direct payments represent a large share of their income. In addition,

cattle and sheep sectors, where significant coupled support is currently granted, are by

definition more affected when coupled support is removed (option 3a).

Furthermore, the stronger the link to high historic references the higher the income drop

due to the regionalisation of the basic payment (flat rate) and to capping (options 3a and

4). This is typically the case for olive growers, intensive livestock and cereal producers.

The redistribution of support to smaller farms (options 3b and 5) leads to higher

income drops for larger farms (mostly cereal producers and extensive livestock farms),

while olive growers (on average 65% smaller than the average EU farm) benefit from

this redistribution.

57 In this simulation, total ANC support (EU and national) was maintained in all options, including in option 5

where ANC support is granted in pillar I via a top-up at fixed level. This level is below the current level of

EU and national support in several MS. It was assumed that the gap was bridged with national funds.

However, this co-financing of pillar I interventions is unlikely.

33

By contrast, the redistribution of support to permanent grassland benefits to

extensive systems (option 4 and 5). Finally, the higher requirements to increase

environmental performance have a bigger impact on crop producers; a 3 year rotation

affects particularly sugar beet and potato producers.

Graph 1. Impact of a 10% linear

cut in support on EU income by

type of farming

Graph 2. Impact of a shift in priorities applying on top

of a support cut on EU income by type of farming

Source: JRC, IFM-CAP

Source: JRC, IFM-CAP, changes relative to option 1

Impact on income depends on choice of target

The quantitative analysis shows that targeting small and medium size farms can be best

achieved with decoupled payments modulated by size (combining both degressivity of

payments by size and capping). However, this redistribution results in undesired effects:

a strong reduction in support for very large farms (more than 500 ha, employing 20

persons on average), an increase in basic payments for more intensive farms (smaller on

average, selecting products with higher returns), as well as a decline of support to most

extensive farmers.

Therefore, in option 5, whose support redistribution is based on such a mechanism, the

latter effect can partly be compensated with coupled support to extensive livestock

systems and top-ups to permanent grassland. Granting a redistributive payment (top-up

on first hectares of the farm, as applied in option 3b) is another possibility to redirect

support to small-and medium-sized farms, while limiting undesired effects of a payment

modulated by size.

Coupled support, if not well tailored, can lead to unfair competition and affect the EU

level playing field. In addition, contrary to decoupled payments and pillar II support, it

hampers productivity gains. However, it can address specific issues that the decoupled

payment would otherwise leave unresolved. Coupled support could be limited and

granted to sectors identified by MS as undergoing certain difficulties, in line with the EU

legislative framework.

-10% -5% 0%

Horticulture

Orchards

Olives

Wine

Sheep&goat

Cattle

Milk

Pig&poultry

COP

Other fieldcrops

-40%

-30%

-20%

-10%

0%

10%

3a 3b 4a 4b 5

34

Targeting EU support to environmental benefits via top-ups to permanent grassland,

organic farming and biodiversity-enhancing elements could be envisaged by MS in their

CAP strategic plans (option 5). However, the analysis shows the difficulties linked to

obliging MS to have the same share of pillar I envelope to be dedicated to these top-ups

and ANC due to significant differences in these features across MS.

Capping direct payments per farm can address concerns about the high level of support

received by few large beneficiaries. However, a correction for salaries paid could be

considered since often these large farms provide a large number of jobs, all the more

since they are mainly located in central Europe where income levels are lower. In the

absence of further convergence of direct payment level (option 3b), capping per hectare

(proportional to the national or regional average payment) could limit differences in

support between farmers. However, this will have more negative effects on Southern MS

and on certain sectors (e.g. olive oil, cattle).

In addition, the introduction of a capping with the objective to create savings could go

against cohesion and convergence, concentrating the burden on a few MS (notably BG

and RO, which one would expect on the contrary to benefit from convergence). By

contrast, it could be envisaged to redistribute the capped amount to smaller beneficiaries.

Finally, lower available budget and shifts in priorities as well as possible reductions in

direct payment imply potentially lower capped amounts.

Overall, quantitative analysis demonstrates that the most effective way to achieve a

reduction in support concentration is to modulate decoupled payments by size (e.g. by

classes of hectares as included in option 5) and, second, to introduce a redistributive

payment.

In mountain areas, farmers’ income is nearly 40% below the income of farms located

outside areas with natural constraints (ANC), and in other ANCs the income is more

than 30% lower. Any cut in this support might threaten the viability of farms in ANC,

which have a key role for the vitality of rural areas and for the provision of

environmental services. This result is also supported by findings of the recent World

Bank study, which shows that the CAP contributes significantly to poverty reduction in

rural areas. This is why maintaining support to ANCs is key, even when other

interventions are cut. Thus, for MS with large ANC area, it is better to keep ANC

payments in pillar II, where co-financing allows granting higher support, while keeping

EU funds to address other challenges. In addition, income disparity between ANCs and

outside ANCs can be reduced with a redistribution of support to permanent grassland

(options 4 and 5) and increasing support to ANCs.

4.2.2. Impact on higher environmental and climate ambition

The higher ambition of the new CAP in terms of environmental sustainability is reflected

in an increase of minimum green requirements of the new conditionality applying in

all options. These green requirements, applying in the whole EU, go beyond the current

cross-compliance rules and account for current greening provisions while overcoming

some drawbacks in its implementation identified in previous analyses. In addition, the

removal of exemptions automatically broadens the area covered by conditionality.

35

Beyond these minimum requirements, MS would have the possibility to define stricter

conditionality requirements and opt for voluntary schemes, via an eco-scheme or via

agri-environment, climate action and health interventions (AECH).58

Moreover, the

assumed budget allocation to AECH, EIP and FAS is another determining factor partly

explaining the difference in the environmental performance of the various options.

Voluntary schemes come with more uncertainty

From the Multi-Criteria Analysis (MCA), which combines a qualitative assessment with

elements from the quantitative assessment, it emerges that the more ambitious

environmental schemes (options 3a and 4a) perform best in terms of addressing

environmental and climate ambition.

The MCA also finds that the overall environmental outcome depends on the

uncertainty surrounding the coverage and implementation of measures by MS. An

approach based on ambitious conditionality (option 4a) seems to be more effective than

a voluntary approach as it is easier to control and it avoids annual budget swings. Most

importantly, it ensures the engagement of all farmers: conditionality works as a

safeguard to enforce the law and any additional requirements set at EU or MS level.59

Furthermore, enhanced conditionality could perform better where there is no existing

regulation in place (e.g. for soil) or if the issue is of general concern (e.g. climate

change). As enhanced conditionality needs to apply to all farmers concerned, it will be

necessarily less demanding/targeted compared to the eco-scheme. Option 5 also scores

high on environmental outcomes as it combines both conditionality and environmentally

targeted top-ups. But the effect of these top-ups is not uniform across MS, as highlighted

in the previous section, because of the significant differences in features across MS, such

as permanent grassland and organic area.

A voluntary eco-scheme is more effective in the case of hot spot problems as it can better

target the desired environmental outcome. Typically under a voluntary eco-scheme,

those already performing well will sign up, while those lagging behind will hesitate to

engage if the provided incentive is not high enough, all the more as the economic

incentive remains key for farmers to change practices (see Annex 8 on behavioural

insights).

Thus, in order to stimulate ambitious environmental and climate choices, additional

safeguards (e.g. target setting or budget earmarking) would be needed. The approval of

CAP plans by the Commission will serve as a first safeguard to ensure sufficient

ambition is translated into adequate targets and financial means, while performance

reporting, and incentives for performance, will bring MS to follow up on their ambition.

58 AECH include the agri-environment-climate measures as well as the support to organic, Natura 2000, water

framework directive payments, animal welfare, forestry and non-productive investments. 59 Farmers face a possible reduction of their CAP support if they do not comply with these requirements.

36

All analysed options show potential for climate and environmental gains

Previous analysis shows that there is a need to give an incentive to farmers in order to

reduce GHG emissions. The EcAMPA project showed that, in the absence of a

compulsory emission reduction target for agriculture, a subsidy covering 80% of the

costs of mitigation technologies, could deliver significant non-CO2 emission reductions,

with little negative impact on EU production.

However, a widespread adoption of these practices by farmers would come with

considerable budgetary and unitary costs and imply substantial incentives. The fact that

such incentives are not explicitly included in the present analysis (also because of its

budget-neutral assumption) explains why only small reductions in non CO2 emissions

compared to baseline are reached in this assessment.

In the present quantitative assessment, the main driver for the reduction in N20 emissions

is the introduction of a farm sustainability tool for nutrients with reduction targets of

N-surplus. Close to 60% of the total reduction in GHG emissions is achieved via

mitigation technologies in option 4a, while it is around 25%-45% in the other options.

The major part of the reduction is due to precision farming and the use of nitrification

inhibitors out of four farming practices modelled.

However, the positive effect of a reduction in GHG emissions is partly offset by

leakage of emissions to other parts of the world. This effect is the strongest in option

3a due to the strong decline of EU beef production replaced by imports from less

efficient regions in terms of GHG emissions/kg of product. The qualitative assessment

considered that the main factors to reduce non-CO2 emissions are policy measures that

impact on cattle numbers and fertiliser use (included in options 3a, 4a and 5); not all such

measures could be modelled in this exercise.

The analysis assumes that the minimum conditionality requirement to maintain the share

of permanent grassland in UAA and the redistribution of support towards permanent

grassland (option 4 and 5) both favour the preservation and sequestration of carbon,

and therefore reduce CO2 emissions. This might also lead to the maintenance of animal

numbers, but the net impact on emissions is always difficult to assess. The protection of

wetlands and peatlands under basic conditionality in all options is clearly seen as an

improvement compared to current policy as it preserves or restores the large existing

carbon pool.

The assessment explored how the introduction of farm sustainability tool for nutrients

combined with nutrient reduction targets could contribute to improve water quality,

concentrating the analysis on nitrogen and introducing reduction targets, differentiated by

regions according to their N surplus and to the possibility they have to trade manure.

The imposed reduction targets were met with an average reduction for the EU of close to

4% of N-surplus in the most constraining scenario. Farmers take advantage of more N-

efficient technologies and are reducing significantly the use of mineral fertiliser, by 1.5%

(option 3b) to 5% (options 3a and 4a).

37

The analysis shows that cover crops can potentially reduce soil erosion on arable land

by 15% and on permanent crops by 30% with a cover rate at 75% in the EU. They can

also produce additional biomass for energy (e.g. biogas) and non-energy uses, without

land use competition (although these impacts were not assessed in the model

simulations). However, soil cover is not systematically used by farmers and not sufficient

to decrease soil erosion. Therefore, the winter soil cover requirement would need to be

combined with other measures e.g. crop rotation, in order to reduce erosion to

acceptable levels in all MS. Crop rotation obligation leads notably to a decline in grain

maize and durum wheat area, which are more often cultivated in monoculture.

The simulated obligation to dedicate 3% of the UAA to non-productive elements such as

set aside, fallow land, linear elements and afforested area is binding in several MS (and

thus for many farmers) and should contribute positively to improving biodiversity.

This IA shows the efficiency of some specific requirements in addressing challenges.

Within the EU legislative framework, based on the analysis to draw their strategic plans,

MS should select the most relevant interventions and requirements to address local and

national needs.

4.2.3. Strong CAP needed to address societal expectations on food and

health

As stated during the public consultation and in the Communication on the Future of food

and farming, the CAP is expected to respond better to consumer demands on food and

health. Related societal expectations stretch over various food-related aspects such as

food security, safety and quality, affordability of food, health issues such as pesticide

load and antimicrobial resistance, food waste and agricultural losses as well as

responding and anticipating to changing demands. These issues are covered across

several of the objectives against which the different options are tested60

.

Regarding food security, the Scenar 2030 study 61

clearly shows the negative impact of

removing the CAP on EU production and trade balance. In addition to the overall level of

production (-6%), the impact on its localisation needs to be considered (concentration in

most productive areas, abandonment elsewhere). For the other options tested in this

Impact Assessment, the quantitative analysis62

shows a predominantly negative effect on

the EU's net trade balance due to the increased environmental climate requirements, the

redistribution of support and the budget cut.

The impact on food safety is not assessed as it is part of the basic requirements and

should be ensured in all options. On top, advances in reduction of pesticide load and

antimicrobial resistance are analysed for the different options in the qualitative part under

the environmental objective.

60 Annex 5 p73 and onwards. 61 Reference see footnote 47. 62 Annex 5 p25, Table 2.10. Also in the qualitative part (Annex 5 p. 48-49) the impact of the policy options on

trade is assessed, with broadly similar conclusions.

38

The many societal expectations on food and health touch upon several economic,

social and environmental objectives. None of the tested options achieves best scores on

all items, hence the interest of complementary approaches. As an example, to quickly

transmit consumer demands to farmers, the policy should not blur market signals (e.g.

through excessive use of coupled support), provide for a well-functioning advisory

system, create synergies along the value chain (e.g. by organising farmers in producer

organisations) while also leaving room for short supply chains. Food waste and

agricultural losses can be reduced by stimulating efficiency gains (through advice,

extension and investment support) and further embedding agriculture in the bio-economy

(innovation, investment on farms and in rural areas).

4.2.4. Assessing how options address specific objectives

From the quantitative analysis it becomes clear that budget cuts together with changes in

income support and higher environmental ambition have strong negative effects on

farmers’ income, with a decline of overall farm income in the options compared to the

baseline. CAP support is crucial in reducing the income gap between agricultural income

and other economic sectors and between Member States and regions.

The analysis further shows that budget cuts have strong negative effects on farms

viability for cattle, sheep and cereal producers, sectors for which direct payments

represent a large share of income. A re-allocation of support to production systems

contributing to environmental sustainability, notably through coupled support to

extensive livestock production systems and redistribution of support to permanent

grassland, can attenuate their drop in income.

The qualitative assessment on its turn shows that none of the options come close to the

theoretical maximum (100), so combining the strong points of the different option

designs will further increase the performance (Graph 3). In general, the policy

compensates for the provision of public goods, which are not sufficiently rewarded by

the market, resulting in better scores on the environmental and social objectives.

From the analysis, several trade-offs emerge. Enhancing the environmental and climatic

performance of the CAP will contribute to preserve natural resources (e.g. the soil) to

produce in a more sustainable way; over the medium and long term, this is expected to

have positive effects on productivity. However in the short term, it could come at an

economic cost for farmers and the agri-food sector.

In particular, the extended requirements considered under the new conditionality (e.g.

obligation to dedicate more land to non-productive elements, land re-allocation to fulfil

crop rotation and cover crop costs) lead to a significant decline in cereal area in favour of

set aside and fallow land, and thus to a decline in market revenue of arable crop

producers as well as to a deterioration of the EU trade balance. Approaches supporting

the shift towards different production systems and new technologies are necessary

to smoothen the impact on farm income and food security.

39

Graph 3. Effectiveness of the options towards the policy objectives

(details for sub-options a and b below)

Also from options comparison, potential trade-offs between policy objectives emerge.

This is for example clear for sub-options 4a and 4b, with 4a scoring better on

environmental objectives, while 4b scores better on economic objectives, as it is less

environmentally demanding. From a pure economic point of view option 3a performs

best because the stronger reduction in the basic payment is supposed to trigger faster

structural change, making the agricultural sector, after an abrupt transition, more efficient

and resilient (for example by using more risk management tools). This comes at the

detriment of the social (and potentially environmental) dimension, as fewer farms will

survive. By contrast, option 5 contributes greatly towards social objectives but attains a

lower score on the economic objectives. As explained in Annex 5, according to the

Multi-Criteria Analysis, its strong focus on small farms is hampering structural change

driven by economies of scale.

0

20

40

60

80

100

Viable farm

income

Competitiveness

Farmers' position

in value chain

Climate change

mitigation &

adaptation

Sustainable

resource use

Nature &

landscapes

Generational

renewal

Growth in rural

areas

Address

territorial

imbalances and…

Base Pre-Brexit

Base Post-Brexit

3

4

5

0

20

40

60

80

100

Viable farm

income

Competitiveness

Farmers' position

in value chain

Climate change

mitigation &

adaptation

Sustainable

resource use

Nature &

landscapes

Generational

renewal

Growth in rural

areas

Address territorial

imbalances and

poverty

3a

3b

4a

4b

40

Regarding consumers' demands on food and health, the (sub-) options scoring better

on price and economic efficiency underperform somewhat with respect to contributing to

healthier lifestyles and sustainable use of pesticides and antibiotics. So also here

there is a trade-off between higher priced food with higher environmental and health

quality attributes versus lower priced food.

A transfer of funding from direct payments to risk management tools could potentially

help farmers facing income variability. Risk management tools should be seen in

combination with the direct payments and market measures that also provide a buffer

against volatility. As shown in Annex 5, compensating income drop via an income

stabilisation tool for all EU farmers is very costly.63

It would need to be targeted to those

that are more frequently exposed to high income variability and have fewer alternative

tools available (futures, insurances, etc.).

This targeting could drive support away from sectors where the main problem is the level

of income rather than its variability, for which direct income support remains a better

solution. Furthermore, there is no guarantee of uptake given the complexity of such tools

and the need for farmers to get organised (e.g. to create mutual funds).64

Rendering the access to a possible agricultural crisis reserve conditional to the use of

risk management tools at farm or sectorial level might result in penalising certain farm

types, especially the most vulnerable and unprotected, not always in the best position to

adopt risk management tools. In addition, it would generate deadweight losses as those

who already receive compensation from their risk management schemes would also

benefit from the crisis reserve. Finally, the heterogeneity of risks and tools related to

price, income or climate makes compliance to conditionality difficult to assess at farm

level.

4.2.5. Research and innovation can turn tensions into synergies

Agriculture research may deliver new insights which often remain confined to the

scientific world only; also, the agricultural sector itself has a considerable and under-used

innovation capacity. Overall, with take up of new knowledge and technology still rather

slow, bridging the gap between research and farming practice is key.

The tensions identified in the previous sections between enhanced environmental

ambition and viable farm income can be partly bridged and turned into synergies in a

well performing Agricultural Knowledge and Innovation System (AKIS). Current

technological advances offer an unprecedented opportunity to move toward modern

farming - more sustainable, resilient, and productive, to a significant extent also based on

EU advanced technologies (e.g. Copernicus). Nature-based solutions can also be further

considered, and knowledge from their applications better spread. However besides

advice, farmers need support to adopt innovation, as the positive effect on income comes

after several years and some environmental requirements will lead to lower returns, at

least in the short/ medium term.

63 The average annual cost of an IST for all EU farmers was estimated close to the current pillar II budget. 64 See footnotes 17 and 19.

41

The basis for enabling an innovation environment is a well-functioning AKIS, where the

actors and potential partners in innovation projects can meet and discuss the main

challenges, and be fed with innovative knowledge. The efficiency and effectiveness of

advisory services can best be upgraded by improving their connections within the AKIS

and sharing knowledge and innovative applications more intensively.

Enhancing interactive innovation is essential to develop solutions which are more ready

to be applied in practice and cover real needs. Supporting digital transition in agriculture

is needed to make sure the potential of digital technologies is fully realized.

All options score significantly better in this area, especially compared to the baseline

post-Brexit. The CAP plans should include a strategic approach towards modernisation,

which will be followed up in the performance reporting. Experts consider that most

significant impact on this objective is to be expected from the EIP, hence its budget

allocation is significantly increased in the alternative options. Other instruments, such as

the young farmer payment, or additional budget for competitiveness or infrastructure and

services, are also important to facilitate innovation uptake.

A digital farm dossier, as well as organising the data gathering and sharing through the

whole supply chain can lead to the simplification of the CAP administration, monitoring

and management systems; together with the building of efficient learning networks useful

for cross-policies implementations. (Additional insights are available in Annex 6)

4.2.6. Synergies from greater flexibility and focus on performance

Annex 7 assesses the simplification under the new delivery model, driven by the shift

towards performance and a streamlined CAP implementation approach. Simplification of

programming and notification procedures, better adaptation to local needs and better

coordination of the actions of the two pillars can reduce administrative burden and can

also improve the acceptance of the CAP.

Higher policy coherence could also result in simplification for administrations and

farmers alike.65

Less prescriptive EU compliance elements and less detail for measures and eligibility

rules would allow economies of scale for checks and reduce burden for planning and

applications as less time would be required for familiarising with information

obligations. Performance-orientation allows putting less emphasis on ex-ante checks,

reducing further administrative burden for applications (less evidence to collect/submit)

and for administrative checks (less evidence to check). Cutting down on EU requirements

also provides for simplification of audits performed by the Commission.

Option 4 holds potential for improved performance with reduced administrative

burden because of the lower uncertainty of conditionality compared to eco-schemes,

which are dependent on their uptake by farmers. High potential reduction in

administrative burden stems from the lower variety and complexity in the schemes taken

65 European Commission (2018) Annex to the Communication on the Multiannual Financial Framework for

2021-2027 COMM (2018) 321 final, P. 54

42

up by MS, which simplifies administrative processes at all levels. While orientation

towards performance is assessed as comparable for options 3 and 5, uncertainties in

simplification derive from the divergences in ambition and related interventions, and how

these translate into the administrative processes. With regard to proportionality of

administrative burden options 3a and 5 score best, due to their higher effectiveness.

However, under greater subsidiarity, the development of national CAP Plans and the way

administrations implement them at beneficiary level will strongly determine the resulting

simplification and performance.

Safeguards and mitigating measures built into the policy cycle should guarantee that

both are met. The EU legislation will include a number of safeguards for anticipation of

risks such as imbalanced strategies, inadequate targeting or lack of ambition. Safeguards

include requirements for content of CAP plans, more ambitious EU basic requirements

(e.g. conditionality), a rule on no back-sliding/increased ambition, and budget

earmarking.

The need to increase the environmental performance requires securing some minimum

requirements (current cross-compliance plus greening) via conditionality. This was

tested across all options, as their basic conditionality contained higher environmental

requirements compared to the baseline. The comparison of the options indicates that

setting minimum requirements works well. In option 4a, minimum requirements for

environmental and climate action were set at a higher level, resulting in a better

environmental performance compared to the baseline. At the same time, the level of

prescriptiveness in EU legislation will be lower and MS will define the details of

implementation of conditionality leading to simplification.

While ambition under measures like conditionality can bring some certainty on

performance, enhanced incentives (some degree of budget earmarking, performance

bonus) to performance could also be needed. As the comparison between option 3a and

3b shows, when more budget is allocated to the eco-scheme, the environmental and

climate performance also improves.

Approval of CAP plans is thus an essential safeguard to assess the completeness,

consistency, coherence and effective contribution to the CAP objectives of the national

strategy. CAP plans should include elements related to simplification and reduced

administrative burden for final beneficiaries. Synergies between economic, social and

environmental objectives can be achieved from better targeting on local needs. Planning

based on needs analysis allows for adequate targeting of measures to regional needs.

The setting of targets in the CAP plans is an important safeguard to monitor whether

MS action is genuine and delivering on the ground. Appropriate attention should be paid

to translating these targets at regional and beneficiary level. It is hence at planning stage

that possible issues can be first detected, such as imbalances, incoherencies, lack of

ambition and gold plating. The continuous and strengthened technical assistance from the

Commission throughout the planning process can help for a better understanding of EU

requirements in terms of planning and so avoiding delays at time of approval. The scope

of the current network for rural development will be extended to the first pillar, to cover

the whole CAP Plan.

43

The annual performance review process constitutes a further basis for detecting

upcoming risks, such as issues with data quality or first signs of underperformance. In

case of underperformance or deficiencies, the European Commission will be able to take

corrective actions including the request to Member States for an action plan for remedial

actions, suspension of payments and financial correction. Last but not least, timely

evaluation will identify remaining issues, by assessing the effectiveness of the CAP and

the realised administrative burden reduction, and allow taking on board lessons for the

next MFF.

4.2.7. Summary of results in the context of the next MFF

The results of the present analysis point out that difficult trade-offs are inherent when the

basic parameters of a policy addressing diverse objectives are significantly changed.

With respect to farm income, both the level and the distribution of support matter.

Securing an adequate level of support and thus farm income remains a key element for

the future, in order to ensure food security, environmental and climate ambition, as well

as rural vitality. In a context of growing market uncertainties, there are limits in pushing

the uptake of risk management tools, as they come at a significant cost and are not

equally available and efficient in all sectors and regions. Moreover, targeting support to

small and medium sized farms and areas with natural constraints can help keeping more

jobs on farms and farming activity on the whole territory, hence strengthening the socio-

economic fabric. In addition, capping and degressivity can improve the distribution of

direct payments. It is clear that any option that significantly redistributes direct payments

towards farms and regions of lower productivity will, in the short-term, lead to a

reduction of EU competitiveness, while it enhances the protection of environment.

Less clear, however, is the appropriate combination of measures that could mitigate

negative income and competitiveness effects, while at the same time better addressing

challenges that are also pertinent for agriculture - such as environment and climate, and

societal expectations. This requires incentivising adjustments that improve both the

economic as well as the environmental performance of the sector and its modernisation.

Contributions from the stakeholder consultation and analyses demonstrate that this is

possible, provided that the necessary accompanying measures addressing a higher

environmental and climate action ambition enable the adoption of best practices (in

both conventional and other forms of farming) that include knowledge, innovation and

the latest pertinent technology. In addition, as shown in various analyses, the economic

incentive for farmers remains a key element to promote the uptake of these practices.

On the basis of the assumptions and choices made in the present analysis, Graph 4 below

summarises the potential trade-offs in the achievement of economic, environmental and

social objectives of the CAP, as well as with respect to its desired modernisation and

simplification. In summary, redistribution could lead to manageable income impacts, and

support the desired increased ambition of environmental and climate action and other

CAP synergies. This, however, would require that the sector and the policy grasp the

opportunities offered by innovation and technologies already allowing modernisation and

simplification.

44

Other assumptions and choices would certainly alter this graph, but not its underlying

message – that the preferred option for the future CAP should combine the most

performing elements of the various options, but avoid their weaknesses by introducing

the necessary safeguards to ensure an EU level-playing field. This implies the need for

clear criteria for the level and the distribution of income support, the climate and

environmental conditionality and overall ambition, the incentives for modernisation and

the appropriate degree of subsidiarity/simplification.

Graph 4. Overall assessment of options performance towards policy objectives

On the basis of the assessment of all these options and combinations thereof, further

specifications can be added on elements included in the proposals for the next MFF for

the CAP (both under the May MFF Communication and the CAP legislative proposals):

Cut in CAP budget: the cut of 5% proposed by the Commission is within the range

assessed in this impact assessment, and appears moderate in the difficult context for

the next MFF. While accounting for revealed MS preferences as regards transfers

between pillars, options tested various combinations of allocations between broad

interventions. This shows that the combined effect of the cut in budget, the

redistribution of support and the emphasis put on environment and climate is

significant. Distribution of support across broad interventions matters for achieving

common objectives assigned to the CAP, hence the relevance of considering some

degrees of earmarking/ring-fencing.

External convergence: It is proposed that all MS with direct payments below 90%

of the EU average will close 50% of the existing gap to 90%, in continuation of the

process started in the period of 2014-2020. All MS above average will contribute to

financing this external convergence of direct payments levels. It means that the

envelopes distribution between MS proposed is somewhat different from the one

used in this impact assessment. Further analysis confirmed that external convergence

contributes to cohesion by reducing differences between MS.

0

20

40

60

80

100Effectiveness ECO

Effectiveness

ENV

Effectiveness SOCEfficiency

Simplification

Future proofing

Modernisation

Base Pre-Brexit

Base Post-Brexit

3

4

5

45

Capping or degressivity of direct payments will promote a more balanced

distribution of support. As shown in the analysis, the impact of capping or

degressivity should not be used to create savings and should remain budgetary neutral

for MS. Therefore, it is proposed that the product of capping could be used to finance

a redistribution of support to smaller farms within the same MS or potentially be

transferred to pillar II. Within this impact assessment, capping was tested in all

options, with a ceiling ranging between EUR 60 000 and 100 000. Moreover, the

analysis pointed to the importance of taking into account labour cost when applying

capping, to avoid negative effects on jobs. To further acknowledge family labour,

related costs could also be taken into consideration, especially with a low ceiling.

Rural Development: In line with other ESIF, it is proposed to increase the national

co-financing rate for rural development by 10%. However, less developed regions

should continue to benefit from higher EU co-financing rates. This should also apply

to interventions of EU priority such as LEADER and the payments for Agri-

Environment, Climate and Health.

Higher level of environmental and climate ambition, thanks to safeguards:

o The strengthening of conditionality: the analysis showed that this works as a

safeguard for ensuring observance of the requirements covered by the

extended conditionality.

o The introduction of voluntary eco-schemes in pillar I.

o The ring-fencing of a significant part of pillar II funding for environment and

climate action.

o Climate mainstreaming: in line with the Paris Agreement and the commitment

to the United Nations Sustainable Development Goals, the Commission

proposes to set a more ambitious goal for climate mainstreaming across all

EU programmes, and thus the CAP, with a target of 25% of EU expenditure

contributing to climate objectives. This should be seen together with ring-

fencing, as many interventions deliver win-win effects for both climate and

environment.

Market measures: against the background of budget cut and needs for external

convergence, a limited reduction of pre-allocated amounts is proposed. On the other

hand, the operation of the crisis management reserve is smoothened. Moreover, it is

proposed to transfer part of the interventions currently undertaken under the Common

Market Organisation (CMO) with sectorial programmes under the CAP Strategic

Plans. This will enhance the coherence of sectorial interventions with the objectives

of the CAP. Based on the effectiveness of existing programmes, it is proposed to

extend this possibility to other sectors within a given budget allocation.

Crisis reserve: A new agricultural reserve will be established in the EAGF, to

provide additional support for the agricultural sector for the purpose of market

management or stabilisation or in case of crises affecting the agricultural production

or distribution.

Risk management: Access to the crisis reserve will be conditional on the set-up of a

risk management strategy at national level (not at farm-level). Risk management tools

are to be included into the CAP strategic plans, and a platform will facilitate

exchange of experience.

46

5. HOW WILL PERFORMANCE BE MONITORED AND EVALUATED?

A shift towards a more performance-oriented policy requires the establishment of a solid

performance framework that, based on a set of common indicators, will allow the

Commission to assess and monitor the performance of the policy.

The current Common Monitoring and Evaluation Framework (CMEF) and the

current monitoring system of Direct Payments and Rural Development would be used as

a basis for monitoring and assessing policy performance, but they will have to be

streamlined and further developed (including consistency between the two pillars).

Further investment into developing appropriate indicators and ensuring sufficient data

streams would be needed.

A new Performance Monitoring and Evaluation Framework (PMEF) will cover all

instruments of the future CAP: the CAP strategic plans as well as those elements of the

CAP not covered by the CAP plans (some parts of the Common Markets Organisation,

specific schemes). Performance would be measured in relation to the Specific Objectives

of the policy by using a set of common indicators.

5.1. Experience from the current Common Monitoring and Evaluation

Framework

5.1.1. Two different Monitoring and Evaluation approaches

The 2013 reform of the CAP established, for the first time, a monitoring and evaluation

framework that would cover the whole CAP (both pillars). This framework has

undergone some changes in terms of promoting simplification and coherence while still

maintaining an in-depth coverage of policy interventions. The monitoring and evaluation

framework for the CAP 2014–2020 is set out by EU regulations at different levels:

The horizontal regulation (Regulation (EU) No 1306/2013, Article 110)

establishes a common monitoring and evaluation framework with a view to

measuring the performance of the CAP. It covers all instruments related to the

monitoring and evaluation of CAP measures and in particular direct

payments, market measures and rural development measures.

More specifically, for pillar II (rural development), the monitoring and

evaluation system is set out by: the common provisions regulation

(Regulation (EU) No 1303/2013), which defines the common monitoring and

evaluation elements for the European Structural and Investment Funds

(ESIF); and the rural development regulation (Regulation (EU) No

1305/2013), which addresses the specificities for the rural development

programmes.

In the current framework, the performance of the CAP measures is assessed in relation to

the three general objectives of the current CAP (i.e. viable food production, sustainable

management of natural resources and climate action, and balanced territorial

development) and, in the case of pillar II, in relation to the thematic objectives and rural

development priorities for the Europe 2020 strategy for smart, sustainable and inclusive

growth.

47

Despite the important advance in developing a single framework for monitoring and

evaluation of the CAP based on the current three general objectives of the CAP, the

existence of different delivery models among the two pillars of the CAP imply, in

practical terms, the coexistence of two different systems to assess performance: a

programming approach in pillar II implies a set of rules and mechanisms for monitoring

and evaluation that coexist with the general mechanisms for the whole policy.

5.1.2. Evaluations

These two approaches also imply different allocation of responsibilities concerning

evaluations:

Evaluations of pillar I measures and of CAP horizontal issues (covering both

pillar I and pillar II) are carried out by independent external contractors under the

responsibility of the Commission services on the basis of a multiannual

evaluation plan. The independent external contractor carries out the evaluation

according to the terms of references under supervision of a steering group in a

given, contractually fixed time period.

For pillar II, the CMES established that MS report on implementation and are

responsible for evaluating their rural development programmes (ex-ante

evaluation, evaluation replies in 2017 and 2019, ex post evaluation). MS must

also submit the ex-post evaluation reports to the Commission by the end of 2024.

The Commission is responsible for the syntheses at EU level of the ex ante and ex

post evaluations (the latter are planned for 31 December 2025).

The process of alignment of the objectives of the policy and the growing overlaps among

the instruments of the two pillars require a more consistent and coherent evaluation

system covering all the instruments of the CAP.

5.1.3. Indicators, data and reporting obligations. Key lessons learnt

In 2018, the Commission will present an initial report on the implementation of the

current Common Monitoring and Evaluation Framework, including first results on the

performance of the CAP66

. With a view to this report, some findings have already been

identified:

Number of indicators. Apart from 45 context indicators describing general

operational environment of the policy current CMEF contains 166 indicators

which are used to determine whether the CAP is achieving its objectives. It

includes 16 impact indicators, 41 result indicators (16 for pillar I and 25 for pillar

II), 24 target indicators for pillar II and 85 output indicators (58 for pillar I, and

26 for pillar II). Indicators should give an overview of the achievements of the

policy. Experience has shown that currently there are too many indicators (and

sub-indicators). Therefore, the new framework will propose a significant

reduction of the number of indicators.

66 Art. 110 of European Parliament and Council Regulation (EU) No 1306/2013 of 17 December 2013 on the

financing, management and monitoring of the common agricultural policy and repealing Council Regulations

and the Commission Implementing Regulation (EU) No 834/2014 of 22 July 2014 laying down rules for the

application of the common monitoring and evaluation framework of the common agricultural policy.

48

Suitability of the indicators to their monitoring purposes. The current output and

result/target indicators used in the Rural Development policy aim at the follow up

of targets set by MS for the programming period. Therefore, the indicators

defined and their specific reporting requirements (e.g. with regard to frequency

and timing) do not always make them suitable for monitoring purposes on annual

basis. Therefore, the new framework should ensure that the indicators used for

monitoring purposes are, taking into account programming transition period,

available on annual basis.

Overlapping in the reporting obligations. The current implementation has

allowed Commission services to identify the coexistence of different reporting

obligations covering the same or similar information. For example, the data

reported to CATS-Combo for audit purposes and data reported in the RD Annual

Implementation Report. A future CAP organised under a single CAP Strategic

plan and a single set of reporting mechanisms should allow for important

simplification in this domain.

Reliability/quality of data. There are quality concerns on available data: beyond

material errors in the notification, inconsistencies among data from MS have been

detected. Therefore, for the future CAP, certification bodies should ensure the

quality of the data before the data is sent to the Commission.

Availability of data. The current framework includes result and target indicators

for which the data should be obtained via surveys by evaluators in MS. Problems

have been identified concerning the availability of this data. Therefore, future

output and result indicators should primarily be based on data which are directly

available via existing systems. Timing of data delivery should be clear. Particular

attention is needed with regards to data availability for the agro-environmental,

biodiversity and climate related indicators.

Sharing of data: the future set of indicators should take into account increasing

reluctance from MS to introduce new indicators and their decreasing

administrative capacity to follow-up existing ones. This is why the use of new

technologies, new data sources and optimisation of existing administrative data

oriented procedures should be encouraged.

5.2. The new Performance Monitoring and Evaluation Framework (PMEF)

5.2.1. Basic principles – indicators

The new model will be organised around the following principles:

Context indicators remain pertinent, as they reflect relevant aspects of the

general trends in the economy, environment and society, and are likely to have

an influence on performance.

A selection of a limited, but more targeted set of indicators should be made

primarily in a way to choose those that reflect as closely as possible whether the

supported intervention contributes to achieving the objectives versus established

baseline and using clear definitions.

49

Overall policy performance will be assessed multi-annually on the basis of

impact indicators. Regular policy performance follow-up will rely on the full

list of result indicators by using different means of analysis to arrive at

conclusions on policy efficiency and effectiveness.

Output indicators would annually link expenditure with the performance of

policy implementation. The latter is an annual exercise, and relies on a list of

(primarily already available) output indicators.

The reliability of relevant performance indicators can be facilitated by synergies

between statistical and administrative data, but requires the presence of a system

of quality controls.

Chart 5. Rationale of sets of indicators

In essence, what is being proposed is a shift in responsibilities and opportunities within a

common framework, clearly defined and enforced, to deliver on more than one key

objective at the same time, namely simplification, result-orientation (rather than

compliance) and policy efficiency and effectiveness.

The new performance-based delivery model requires a solid evidence base composed of

indicators which are reliable, comparable and available on time. Both the Commission

and MS have to commit themselves to producing and using them.

It is proposed to organise the monitoring and evaluation of the future policy on the basis

of a common set of indicators that was developed in line with the impact assessment (see

Table on indicators in the legislative proposal on establishing rules on support for CAP

strategic plans).

5.2.2. Annual Performance review

An annual performance review is foreseen as the key element of the ongoing monitoring

and steering of policy implementation. In order to make an annual performance review

operational, adequate output indicators and result indicators will have to be submitted

jointly in an annual report on the implementation of the CAP plan, the so-called Annual

Performance Report. MS will report annually on financial allocations, along with

realised output and expenditure as well as distance to targets set for the whole period,

expressed as values of common and programme specific result indicators.

50

In cases of delayed progress towards the targets set for results for the whole period, or

where schemes/interventions are failing to take off, MS will carry out an analysis of

shortcomings and will include in the report proposals for remedying actions. The

assessment of those reports would trigger interaction with MS in view of helping them to

implementing the planned policy in an efficient way. This exercise would also involve

the continuous exchange between MS and the Commission including in a regular Annual

Review and Monitoring Committee meetings, on the state of play of the evolution of

programme implementation towards the targets. In this context, on the basis of the

provided information and available evidence, the Commission could provide pertinent

recommendations to MS.

5.2.3. Evaluation planning and reporting obligations

The following steps are foreseen as regards evaluation planning and reporting

obligations:

MS are responsible for evaluating their strategic plans (ex-ante, on-going and

ex-post) and report yearly on implementation. MS also establish and carry out a

specific evaluation plan for their strategic plan.

The Commission will provide a synthesis of the MS ex-ante and ex-post

evaluations.

On top of the annual reporting by MS on their strategic plans, the Commission

will launch specific evaluations on specific topics during the programming

period. These evaluations will combine the information facilitated by MS with

the evidence directly available to the Commission.

Evaluations are planned in accordance with the policy cycle and the study and

evaluation plan of DG AGRI (which is publicly available).

All CAP evaluations should be based on robust methodologies, using

counterfactual approaches where feasible.

The Commission will carry out a mid-term assessment of the performance of

the policy when the available evidence permits a meaningful causality link of

the policy to results (e.g. after the first 3 years of implementation).

The Commission would present two reports to the European Parliament and the

Council on the implementation of the CAP strategic plans. These reports would

be based on information collected from the PMEF, covering all instruments of

the future CAP: the CAP strategic plans as well as those elements of the CAP

not covered by the CAP plans. It also includes common context, output, result

and impact indicators. This would include findings from both MS CAP strategic

plan evaluations and from the Commission evaluations. The Commission could

present an initial report, including first results on the performance of the CAP by

December 2025 and a second report by December 2031.

51

5.2.4. Data / Sources of information

The new focus on policy performance requires comprehensive, complete, timely and

reliable information on EU agriculture and rural areas. Existing data sources need to be

adapted and strengthened to match better with the new policy and where needed, new

data sources should be explored and mobilised in order to reduce the burden for farmers

and administrations, while at the same time improving policy evidence base.

The FADN database is already widely used for analytical and evaluation purposes but

FADN coverage needs to be expanded to provide the best possible representation of

market-oriented farms in the EU. This may require a revision of variables in the farm

return (also taking into account the recommendations of the FLINT project67

), and the

way in which CAP beneficiaries participation in the FADN data collection is organised.

Agricultural statistics will continue to play a major role in CAP performance

assessment. The ongoing modernisation of agricultural statistics is providing the

foundation for future data availability and aims to ensure continuity of core data

combined with an element of flexibility for new and urgent data needs.

Further development of data quality especially in relation to impact indicators linked to

agro-environmental, biodiversity and climate related issues is needed in order to make

them more fit for purpose to evaluate the performance of the CAP.

A key challenge lies in cross-linking existing data sets such as administrative databases

stemming from application forms (IACS, LPIS) and registers maintained by MS and data

collected and coordinated by Eurostat (Farm Structural Survey, land use and livestock

surveys, agro-monetary and agro-environmental statistics) and FADN in DG AGRI.

Close cooperation between the European Statistical System (ESS), European institutions

and MS' administrations is crucial to ensure that data collected for administrative

purposes can also be used for statistics and analyses and for overall functioning of the

evaluation framework of the future CAP.

In addition, new sources of data such as satellite monitoring (Copernicus), big data

solutions, and cooperation with specific data providers should be better utilised.

67 LEI- WUR et al. (2016) Farm Level Indicators for New Topics in policy evaluation project (FLINT),

financed under the FP7, website.